By Shobhana Chandra and Bob Willis
Jan. 15 (Bloomberg) -- First-time claims for unemployment insurance climbed and prices paid to U.S. producers tumbled, signaling no end to the job-market rout and collapse in raw- materials prices spurred by the deepening recession.
Initial jobless claims jumped to 524,000 in the week ended Jan. 10, the Labor Department said today in Washington. Producer prices fell 1.9 percent, capping the first annual drop since 2001. Separately, the Federal Reserve said manufacturing in the Philadelphia and New York regions shrank further in January.
The figures show the impact of a worsening global economic downturn that is hammering companies including Alcoa Inc., General Electric Co. and engine-maker Cummins Inc., which all announced additional job cuts this month.
“Economic conditions in the United States, and indeed in much of the world, are weak and deteriorating rapidly,” Christina Romer, President-elect Barack Obama’s nominee to lead the White House Council of Economic Advisers, told lawmakers today. Job losses show “no evidence of stopping” and credit flows “have not been restored,” she said.
The Standard & Poor’s 500 Stock Index closed up 0.1 percent at 843.74. Treasuries ended little changed, with benchmark 10- year yields at 2.21 percent at 5:16 p.m. in New York. The dollar was also little changed at $1.3127 per euro after the deteriorating economic outlook in Europe prompted the European Central Bank to cut interest rates today.
Factory Gauges
The Fed Bank of Philadelphia’s general economic index was minus 24.3 this month compared with minus 36.1 in December. The New York Fed’s Empire State index was at minus 22.2, from a revised minus 27.9 in December that was lower than previously reported. Readings below zero indicate a contraction.
“The economy is in horrible shape and probably getting worse,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. “All of the trends that have been in place are worsening. The downward momentum is building in the labor market, there’s pressure on consumers and tight credit.”
Obama, who takes office Jan. 20, is pressing for quick passage of a stimulus plan that may exceed $800 billion that would cut taxes, boost infrastructure spending, and create jobs.
“Well designed, aggressive government policies will make a crucial difference,” Romer, a professor of economics at the University of California, Berkley, said in testimony at her confirmation hearing at the Senate Banking Committee.
Fifth Decline
The drop in the producer-price index in December was the fifth straight monthly decline and followed a 2.2 percent decrease in November. Excluding fuel and food, the so-called core rate rose 0.2 percent after a 0.1 percent increase.
Falling commodity costs and asset values are raising concern among some Fed officials about the danger of deep and extended price decreases that would worsen the economic downturn.
Fed officials last month discussed setting an explicit target for inflation to discourage expectations that price increases will slow “below desired levels,” according to minutes of the Dec. 16 meeting released last week.
Some policy makers saw “significant risks that inflation could decline and persist for a time at uncomfortably low levels,” the minutes said.
Outlook for Prices
“The recession will continue through most of the year, and in this environment, producer prices can only move downward,” said Sal Guatieri, an economist at BMO Capital Markets in Toronto, who forecast a 2 percent drop in PPI.
Prices paid to factories, farmers and other producers were forecast to decline 2 percent, according to the median estimate of 77 economists in a Bloomberg News survey. Core prices were projected to rise 0.1 percent for a second month, the survey median showed.
The increase in jobless claims last week exceeded the median forecast of economists surveyed by Bloomberg for a reading of 503,000. The previous week’s initial claims were revised to 470,000 from the 467,000 initially estimated.
Alcoa, the largest U.S. aluminum producer, this month reported its first quarterly net loss in six years and said it will further cut output in 2009 if demand continues to weaken. Aluminum prices are at five-year lows as automakers, builders and appliance manufacturers cut orders.
“The aluminum industry is caught up in a perfect storm of historic proportion,” Chief Executive Officer Klaus Kleinfeld said on a conference call with analysts on Jan. 12. “Inventories are building and prices are decreasing.”
Producer prices are one of three inflation gauges reported by the Labor Department. Prices of goods imported into the U.S. fell for a fifth consecutive month in December, figures showed yesterday.
A report tomorrow may show consumers’ cost of living decreased 0.9 percent in December after a 1.7 percent drop the previous month that was the biggest since records began in 1947, according to the Bloomberg survey.
To contact the reporters on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net; Bob Willis in Washington bwillis@bloomberg.net
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