Jobless Numbers Jump While Prices Drop
New U.S. claims for jobless benefits increased more than expected last week, reflecting continued weakness in the labor market in the new year. That was coupled with news that producer prices dropped for the fifth straight month on the heels of a huge plunge in energy prices.
The Labor Department reported Thursday that first-time requests for unemployment insurance jumped to a seasonally adjusted 524,000 in the week ending Jan. 10, from an upwardly revised figure of 470,000 the previous week. Analysts had expected 500,000 new claims.
The increase is partly due to a flood of requests from newly-laid off people who delayed filing claims over the holidays, a Labor Department analyst said.
The rise in unemployment claims comes after two weeks of declines that economists said largely reflected those holiday-related distortions in the data. Analysts have said that retailers did not hire as many temporary seasonal workers this year, due to the recession, and so there weren't as many subsequent layoffs.
But the jump in this week's numbers could signal the resumption of an upward trend in claims that was evident last year.
"I'm not sure whether it's the worst recession since 1982 or the worst recession since the 1930s, but it's gonna get worse before it gets better and don't expect any turnaround until at least mid-year," David Wyss, chief economist at Standard & Poors, told CBS Radio News.
Initial claims reached their highest level in 26 years three weeks ago when the department said 589,000 people filed new claims. That was the highest level since November 1982, when the economy was emerging from a steep recession, though the labor force has grown by about half since then.
In one spot of good news, the number of people continuing to request benefits declined to 4.5 million, down from an upwardly revised figure of 4.6 million the previous week. The continuing claims lag the initial claims data by one week.
Still, the number of people remaining on the rolls is near a 26-year high and is up sharply from a year ago, when it stood at 2.7 million.
The high level of continuing claims is an indication that many laid off workers are having difficulty finding new jobs.
Companies across many different sectors of the economy cut jobs this week. Computer equipment maker Seagate Technology said Wednesday that it will eliminate 2,950 jobs, or 6 percent of its work force.
Other companies that have announced layoffs recently include: pharmaceutical company Pfizer Inc., mobile phone maker Motorola Inc., and industrial conglomerates Textron Inc. and Cummins Inc.
Inflation Drops Again
Another huge plunge in energy costs sent wholesale inflation down for a fifth straight month in December, closing out a year in which prices dropped by the largest amount in seven years.
Wholesale prices fell by 1.9 percent in December, the Labor Department said Thursday. That was just below the 2 percent decline that economists expected.
For the year, the government said wholesale prices fell by 0.9 percent, the first annual decline since prices dropped by 1.6 percent in 2001. That also was a year in which the country was in a recession.
By contrast, inflation at the wholesale level soared by 6.2 percent in 2007. Until a few months ago, there were fears that a relentless surge in energy prices could set off a wider bout of inflation in the economy.
But since September, worries about inflation have been replaced by fears that the worst financial crisis since the 1930s could push the country into a deep and prolonged recession.
There are some concerns that the price declines could become so pronounced that the country could face a debilitating bout of falling prices, or deflation, something not experienced in the U.S. since the Great Depression.
However, most economists believe that threat is still remote. They have confidence that the Federal Reserve, which last month cut a key interest rate to nearly zero, has the tools needed to keep deflation from becoming a problem.
Core inflation, which excludes food and energy, posted a modest 0.2 percent rise in December, slightly higher than the 0.1 percent increase analysts expected. For the year, core inflation was up 4.3 percent, the biggest annual increase since a 4.4 percent increase in 1988.
But economists believe inflation pressures outside of food and energy will quickly subside now that the country is mired in the longest recession in a quarter-century.
The 1.9 percent overall drop in the government's Producer Price Index for December, which measures costs before they reach consumers, represented the fifth consecutive monthly decline. The decreases were led by plunging energy costs.
Energy prices last month dropped by 9.3 percent, reflecting a record 25.7 percent plunge in the cost of gasoline. Food costs fell by 1.5 percent, the biggest monthly decline since February 2006.
The cost of passenger cars jumped by 1.2 percent in December, the biggest gain since August. But economists saw that increase as temporary, given all the problems facing automakers, who are suffering with slumping sales because of the weak economy.
General Motors Corp. and Chrysler LLC were forced to obtain government bailouts last month in an effort to buy time to reorganize.
The big slowdown in inflation at the wholesale level also has been reflected in falling prices at the consumer level. Consumer prices plunged by 1.7 percent in November, the largest one-month decline on records going back 61 years. That surpassed a 1 percent drop in October.
The government will release the December report on consumer prices on Friday. In advance, economists surveyed by Thomson Reuters are looking for that report to show a 0.9 percent decline, with core inflation at the consumer level expected to post a small 0.1 percent increase.