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Signs Economy Is Heating Up

The number of new people signing up for jobless benefits dropped last week and wholesale prices rose in May at the fastest pace in 14 months, according to two reports released Thursday by the Labor Department.

The reports suggested the growing economy is on one hand spurring a job-market rally while at the same time bringing back inflationary pressures by making it easier for companies to raise prices.

New applications filed for unemployment insurance dropped by a seasonally adjusted 15,000 to 336,000, the lowest level since May 8. The decline left claims at a level that was lower than the 342,000 that some economists were forecasting.

A portion of last week's decline was related to roughly 15 states closing their employment offices to observe the national day of mourning last Friday for former President Ronald Reagan, a Labor Department analyst said.

Even so, claims are at a level suggesting that the labor market is recovering. That point is underscored when compared to the same week a year ago, when claims were at 421,000, a level that pointed to a weak job market.

The drop in unemployment mirrors other recent reports showing an improved jobs picture. That improvement has been across racial and ethnic groups, although USA Today reports that blacks and Latinos still face sharply higher unemployment than whites. In May, 5.4 percent of whites were counted as unemployed, compared with 9.9 percent of blacks and 7 percent of Latinos.

In the second report, the Producer Price Index, which measures prices of goods before they reach store shelves, rose by 0.8 percent in May, following a 0.7 percent rise in April. Higher prices for energy and food were the culprits behind the rise in wholesale prices for both months.

The 0.8 percent rise was the largest since a 1.3 percent spike in March 2003.

Excluding energy and food prices, "core" wholesale prices rose by a more modest 0.3 percent in May, after a 0.2 percent rise the month before.

The readings on overall wholesale prices as well as the core rate of inflation were higher than economists were expecting. They were forecasting a 0.6 percent increase in the PPI and a 0.2 percent rise in core prices.

The wholesale price report follows a report issued by the government Tuesday showing consumer prices in May rose at the fastest pace in more than three years, as rapidly increasing food and fuel costs forced Americans to dig deeper into their pockets. But core consumer prices went up by only 0.2 percent in May, suggesting most other prices remain in line.

Even with the pickup in inflation, Federal Reserve Chairman Alan Greenspan, in an appearance on Capitol Hill just hours after the consumer price report was released, said he is not worried that the country is on the brink of an unwanted surge in inflation. Any rate increases by the Fed would be at a measured pace unless economic conditions change, he said.

Meantime, the Conference Board said that its Composite Index of Leading Economic Indicators rose a stronger-than-expected 0.5 percent in May, suggesting a sturdy expansion throughout the summer. The closely watched indicators increased to 116.5 last month following rises of 0.1 percent in April and 0.8 percent in March.

With the economy growing smartly and the labor market in recovery, economists widely expect the Federal Reserve will boost short-term interest rates for the first time in four years at its next meeting on June 29-30. The Fed's key short-term interest rate is at a 46-year low of 1 percent. Most economists are expecting a one-quarter percentage point increase.

Greenspan said he and his Fed colleagues continue to hold the view that "inflationary pressures are not likely to be a serious concern in the period ahead." But if their forecasts turn out to be wrong, Greenspan said more aggressive action would be taken.

In its weekly nationwide survey of rates, Freddie Mac reported Thursday that rates on benchmark 30-year, fixed-rate mortgages climbed to 6.32 percent for the week ending June 17, up from 6.30 percent last week. The rise in rates is in anticipation of the Fed moving to raise the federal funds rate.

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