The number of Americans filing initial claims for jobless pay dropped last week to the lowest level since 2000, the government said on Thursday, bolstering expectations for a strong April employment report. But labor costs rose unexpectedly in the first quarter in a mild challenge to the Federal Reserve's view inflation is no threat, while productivity increased at a respectable 3.5 percent annual pace. U.S. Treasury yields hit a two-year high on the unexpectedly rosy jobless number and the dollar also gained as markets increasingly bet the Fed will hike interest rates later this summer. First-time claims for state unemployment benefits shrank 25,000 to 315,000 in the week ended May 1, the Labor Department said. It was the third straight week of declines and highlights the picture of an improving labor market. Wall Street analysts had forecast a slight fall in claims to 335,000 from a revised 340,000 the previous week. "The jobless numbers are surprising low. It's more evidence the labor market is recovering quite nicely," said David Sloan, senior economist at 4Cast Ltd in New York.
Grant Wilson, vice president of foreign exchange at Mellon Bank in Pittsburgh, agreed. "We weren't expecting anything as (good) as this. It bodes well for the unemployment number tomorrow," Wilson said. April non-farm payrolls are set for release at 8:30 a.m. EDT (1230 GMT) on Friday and are forecast to show 173,000 new jobs created. That would be a marked moderation from March, when 308,000 were added, but still evidence that labor conditions are tightening. Last week's jobless claims data will make no difference to the April report, which was drawn from a survey in the middle of last month. But the upbeat tone chimed with a broad sense that the outlook was bright.
WAGE PRESSURES?
In addition to lower initial claims, the four-week moving average of insurance filings, which smooths weekly fluctuations to provide a better picture of underlying trends, retreated by 3,750 to 343,250. Also, the number of unemployed on the benefit rolls after claiming an initial week of aid dropped 69,000 to 2.935 million in the week ended April 24, the latest for which figures are available. This was the lowest since June 2001, in the middle of the recession, when 2.933 million people were drawing unemployment insurance. The drop was a potentially positive development since the number had been indicating that while the pace of layoffs had slowed, firms were still not rushing to hire new workers and instead had been utilizing greater productivity to meet higher demand.
In a separate report, the Labor Department said productivity rose again in the first quarter, increasing at a 3.5 percent annual rate, as expected. But unit labor costs turned 0.5 percent higher, defying market forecasts for costs to be flat. "The rise in unit labor costs is not worrying, but it is the least good performance in a year, and the chances are that the next few quarters will see bigger increases," said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York. Powerful productivity growth has helped companies keep a lid on compensation costs but the pick-up in employment had been expected to signal the end of this cycle and the Fed will take note of the uptick in costs. The central bank is expected to hike interest rate for the first time in four years in the months ahead, but announced after a regular meeting on Tuesday it would be "measured" in removing policy accommodation after leaving rates at a 1958-low of 1 percent.///