WRAPUP 4-U.S. jobless, price data fan concerns on economy

* New jobless claims surge unexpectedly last week

* Producer prices increase more than expected

* Measure of economic prospects up for 10th straight month

* Regional manufacturing gauge rises faster than expected
(Adds Fed raising discount rate, closing market action)

By Lucia Mutikani

WASHINGTON, Feb 18 (BestGrowthStock) – The number of U.S. workers
filing new applications for unemployment insurance unexpectedly
surged last week, while producer prices increased sharply in
January, raising potential hurdles for the economy’s recovery.

Initial claims for state jobless benefits increased 31,000
to 473,000, the Labor Department said on Thursday. Financial
markets had expected them to fall slightly to 430,000.

Another report from the department showed prices paid at
the farm and factory gate rose a faster-than-expected 1.4
percent from December as higher gasoline prices and unusually
cold temperatures helped boost energy costs.

The rise in jobless insurance claims dealt a setback to
hopes the economy was on the verge of job growth and could
increase political pressure on President Barack Obama, who has
made tackling unemployment his number one priority.

“The recovery is still intact, but it’s going to be a long
slog. The labor market and housing remain problematic,” said
Ryan Sweet, senior economist at Moody’s Economy.com in West
Chester, Pennsylvania.

Disappointment over the claims and producer inflation data
was partially offset by reports showing stronger gains in
factory activity in the U.S. Mid-Atlantic region and a 10th
straight monthly rise in a gauge of the economy’s prospects.

The Philadelphia Federal Reserve Bank’s business activity
index rose to 17.6 in February from 15.2 the prior month, while
the Conference Board’s index of leading economic indicators
rose 0.3 percent last month after December’s 1.2 percent gain.

The Federal Reserve, citing improvement in financial market
conditions, announced on Thursday it would raise the interest
rate it charges banks for emergency loans. The discount rate
rises to 0.75 percent from 0.50 percent, effective Friday.

U.S. stock indexes ended higher on a batch of reassuring
corporate earnings. However, stock index futures fell on news
of the discount rate hike, which came after market close.

Treasury debt prices tumbled, weighed down in part by an
announcement that the government would auction a record $126
billion worth of notes next week. The U.S. dollar, which has
gained steadily on a stream of improving economic data in
recent months, initially fell on the weak claims report, but
reversed course on the discount rate news.

JOBS LAG RECOVERY

The hard-hit labor market has lagged the economic recovery
that started in the second half of 2009. Gross domestic product
grew at a 5.7 percent annual rate in the fourth quarter, but
still failed to ignite jobs growth.

“Initial claims have been flat over the last three months.
That means the improvement in the labor market is much slower
than suggested by the headline GDP figure,” said Harm Bandholz
an economist at Unicredit Research in New York.

“That shows GDP growth is artificially inflated by
government stimulus and the inventory cycle rather than driven
by final demand, which usually goes hand in hand with an
improvement in the labor market.”

The economy has lost 8.4 million jobs since recession
struck in December 2007.

Analysts noted the claims data covered the survey week for
the government’s report on employment for February, due early
next month. That, along with snow storms that blanketed much of
the nation in recent weeks, offered another reason to expect a
weak report, they said.

Concerns about employment affected sales at Wal-Mart during
the holiday quarter and the world’s largest retailer said on
Thursday that U.S. sales would be more challenging in the first
quarter. It said its forecasts for the current quarter could
miss Wall Street estimates. For details see [ID:nN16220499]

Economists were caught by surprise by the strong rise in
producer prices, but most said they did not expect the upward
trend to be sustained, pointing to spare factory capacity and
sluggish wage growth.

About three-fourths of the increase in PPI last month was
due to a 5.1 percent jump in prices for energy goods. Energy
costs were pushed up by a spike in prices for gasoline,
liquefied petroleum and home heating oil.

Stripping out the volatile food and energy costs, core
producer prices rose 0.3 percent last month after being flat in
December. The core index, which had been forecast to rise 0.1
percent, was lifted by a surge light motor truck and
pharmaceutical prices.

“The PPI measurement of motor vehicle prices appears to be
entirely disconnected from reality. It is a source of
significant distortion in the monthly results that should be
ignored,” said David Greenlaw, an economist at Morgan Stanley
in New York.

The department on Friday will release its consumer price
report for January. Overall CPI is seen rising 0.3 percent from
December and core CPI gaining 0.1 percent, according to a
Reuters survey.

For a graphic on new jobless claims, see:
http://link.reuters.com/wug22j
For a graphic on U.S. producer prices, see:
http://link.reuters.com/vug22j

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(Additional reporting by Lisa Lambert)

WRAPUP 4-U.S. jobless, price data fan concerns on economy