WASHINGTON (Reuters) – The number of Americans filing for unemployment benefit unexpectedly fell last week, but could rise in the coming weeks as the coronavirus pandemic causes companies to layoff workers amid supply chain disruptions and waning demand for some goods and services.
Other data on Thursday showed producer prices dropping by the most in five years in February, pulled down by declines in the costs of goods such as gasoline and services. Financial markets are expecting that the Federal Reserve will aggressively cut interest rates again at its policy meeting next week to counter the coronavirus’ damaging impact on the economy.
The U.S. central bank implemented a 50-basis-point emergency rate cut last Tuesday as the highly contagious coronavirus fanned fears of a recession in the U.S. and global economies. Many economists are predicting the Fed will reduce its benchmark overnight interest rate to zero by year-end, given low inflation expectations, underscored by a plunge in Treasury yields.
Initial claims for state unemployment benefits dropped 4,000 to a seasonally adjusted 211,000 for the week ended March 7, the second straight weekly decline, the Labor Department said.
Jobless claims are the most timely labor market indicator and are being closely monitored for clues on the coronavirus’ impact on the economy. Economists polled by Reuters had forecast claims rising to 218,000 in the latest week.
The four-week moving average of initial claims, considered a better measure of labor market trends as it irons out week-to-week volatility, rose 1,250 to 214,000 last week.
The dollar was trading higher against a basket of currencies. U.S. Treasury prices rose. U.S. stock index futures hit a down trading limit for the second time this week on Thursday, after President Donald Trump suspended travel from Europe, but failed to convince markets he could contain the economic damage from the coronavirus pandemic.
The World Health Organization on Wednesday declared the coronavirus outbreak a pandemic. The virus, which causes a respiratory disease called COVID-19, has killed at least 38 people in the United States and sickened more than 1,300. Overall, more than 4,700 people have died from COVID-19 and over 127,000 have been infected, according to data from Johns Hopkins University.
The disease originated in China, the main source of inputs used in many factories, as well as goods consumed in the United States. While some Chinese factories have resumed operations after Beijing extended the Lunar New Year holidays in an effort to limit the spread of the virus, they are running below capacity.
The coronavirus, which causes a flu-like illness, is also hurting demand for transportation, especially air travel, as well as entertainment and recreation, and leisure and hospitality services. There already are reports of layoffs in some of these industries.
Companies in the energy sector have also been affected as crude prices have tumbled, a plunge that has been exacerbated by an oil price war between Saudi Arabia and Russia.
MORE RATE CUTS EXPECTED
The Fed last week slashed its benchmark overnight interest rate by a half percentage point to a target range of 1.00% to 1.25%. Financial markets have fully priced in a rate reduction of as much as 75 basis points at the U.S. central bank’s March 17-18 policy meeting. Growth estimates for the first half of this year are around 1%. The economy grew 2.3% in 2019.
In another report on Thursday, the Labor Department said its producer price index for final demand dropped 0.6% last month, the biggest decline since January 2015, after surging 0.5% in January. In the 12 months through February, the PPI increased 1.3% after gaining 2.1% in January.
Economists polled by Reuters had forecast the PPI dipping 0.1% in February and rising 1.8% on a year-on-year basis.
Excluding the volatile food, energy and trade services components, producer prices slipped 0.1%, the first drop since June, after climbing 0.4% in January. The so-called core PPI advanced 1.4% in the 12 months through February after rising 1.5% in January.
The coronavirus pandemic could boost prices for inputs because of bottlenecks in the supply chain. But the virus is also expected to suppress demand for services like transportation, hotel accommodation, entertainment and recreation. In addition, fears of a global recession because of the virus and the oil price war have sent crude prices tumbling.
In February, wholesale energy prices dropped 3.6% after falling 0.7% in January. They were weighed down by a 6.5% plunge in gasoline prices, which followed a 1.5% decline in January. Gasoline accounted for nearly one-third of the drop in the cost of goods last month.
Goods prices tumbled 0.9% last month, the most since September 2015, after ticking up 0.1% in January. Wholesale food prices fell 1.6% in February after climbing 0.2% in the prior month. Core goods prices dipped 0.1% last month. They increased 0.3% in January.
The cost of services dropped 0.3% in February after rebounding 0.7% in January, the most since October 2018. There were decreases in the cost of airline tickets, water transportation of freight and hotel accommodation, which recorded its biggest decline since April 2009.
But the cost of healthcare services rose 0.2% last month after rising 0.6% in January. Portfolio management fees increased 0.3% after accelerating 2.3% in January. They could, however, take a hit from an ongoing sharp sell-off in the stock market. Those healthcare and portfolio management costs feed into the core PCE price index.
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