WRAPUP 4-US data points to modest recovery, muted inflation

* New claims for jobless benefits fall less than forecast

* Mid-Atlantic region manufacturing activity accelerates

* Consumer prices flat, core inflation muted
(Updates with closing market action)

By Lucia Mutikani

WASHINGTON, March 18 (BestGrowthStock) – Labor market and consumer
prices data on Thursday showed the U.S. economy is on a
moderate growth path and inflation pressures are contained,
backing up the Federal Reserve’s vow to keep benchmark interest
rates ultra-low for some time.

Initial claims for state unemployment benefits fell 5,000
to 457,000 last week, the U.S. Labor Department said,
suggesting the jobs market was improving, but only gradually.

In another report, the department said the Consumer Price
Index was unchanged in February after rising 0.2 percent the
prior month. Excluding volatile energy and food prices, the
closely watched core measure of consumer inflation inched up
0.1 percent after falling the same amount in January.

“Even though we have growth in the economy, there is still
spare capacity that is putting downward pressure on inflation.
We think the Fed can be comfortably on hold,” said Zach Pandl,
U.S. economist at Nomura Securities International in New York.

Citing a moderate economic recovery and low rates of
resource utilization, the Fed — the U.S. central bank — this
week renewed a promise to keep its benchmark interest rate
exceptionally low for an extended period.

The economy resumed growth in the second half of 2009, led
by the manufacturing sector as factories ramped up production
to rebuild inventories that had been reduced to record low
levels because of weak demand.

Manufacturing continues to expand and the Philadelphia
Federal Reserve Bank said its business activity index rose to a
reading of 18.9 in March from 17.6 in February, but new orders
fell. A reading above zero indicates expansion in
manufacturing.

The drop in orders and the smaller-than-expected drop in
new applications for jobless aid contributed to the U.S.
Standard & Poor’s 500 index (.SPX: ) ending flat. Disappointment
over a tiny rise in domestic volumes handled by major package
deliverer FedEx Corp in the three months to Feb. 28 also
weighed on the index.

FedEx is considered a bellwether of U.S. economic activity
and the small gain in domestic volume suggested a slow
recovery. For story see [ID:nN1799848].

The data had little impact on U.S. government debt prices
or on the dollar. Government debt prices fell after the
Treasury said it would auction $118 billion worth of notes this
month, while the dollar rose against a basket of currencies,
supported by concerns over debt-stricken Greece.

SLOW LABOR MARKET HEALING

Analysts said the small decline in initial jobless claims
last week was indicative of a labor market that was slowly
healing and meant benchmark lending rates would stay in the
current zero to 0.25 percent range for a while.

The claims data covered part of the survey period for the
government’s employment report for March, which will be
released April 2. Analysts expect this key data to show job
growth in March, led by temporary hiring for the 2010 census.

About 8.4 million jobs have been lost since the start of
the recession in December 2007 and creating employment is
critical to the economy’s transition from a government-aided
recovery to a self-sustained one.

President Barack Obama, who has made tackling unemployment
a priority, signed into law a $17.6 billion jobs bill on
Thursday and said jobs were in sight.

“A consensus is forming that, partly because of the
necessary — and often unpopular — measures we took over the
past year, our economy is growing again and we may soon be
adding jobs instead of losing them,” Obama said. “The jobs bill
I’m signing today is intended to help accelerate this
process.”

Obama and his fellow Democrats fear that public discontent
over jobs could cost the party its majority in the U.S. House
of Representatives and the Senate in the November elections.

While weekly jobless claims have struggled to post huge
declines after falling rapidly in the second half of 2009,
other employment indicators suggest the labor market is
stabilizing and support views of job growth in the near term.

The Philadelphia Fed’s employment index in March rose to
its highest reading since August 2007.

“Labor market conditions are repairing only slowly. I would
expect (March) payrolls to be up, somewhere in the range of a
hundred to maybe a hundred and twenty-five thousand,” said
Robert Dye, a senior economist at PNC Financial in Pittsburgh.

“It’s my expectation that we will see ongoing gains in
private sector hiring. That is going to be the acid test
whether we get into a self-sustaining recovery or not.”

Labor market weakness, low industrial capacity utilization
and high vacancy rates for residential and office space are
keeping inflation pressures in check. While falling energy
costs put a lid on consumer prices last month, inflation is
trending lower on an annual basis.

Over the past year, core inflation has risen just 1.3
percent. That marks a slowdown from January’s 1.6 percent
reading and is the lowest since February 2004.

Even though the economic recovery remains on course, there
are signs of a slowdown in momentum.

The Conference Board’s index of leading economic indicators
— a gauge of the U.S. economy’s prospects — edged up 0.1
percent in February after a 0.3 percent increase in January.
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Graphic on jobless claims: http://link.reuters.com/dyz34j
Graphic on inflation: http://link.reuters.com/tuz34j
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Stock Analysis
(Additional reporting by Steve Holland in Washington and
Burton Frierson in New York; Editing by Leslie Adler)

WRAPUP 4-US data points to modest recovery, muted inflation