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U.S. data points to firming labor market, inflation tame

Job seekers listen to a presentation at the Colorado Hospital Association health care career fair in Denver April 9, 2013. REUTERS/Rick Wilk
Job seekers listen to a presentation at the Colorado Hospital Association health care career fair in Denver April 9, 2013. REUTERS/Rick Wilk

By Lucia Mutikani

WASHINGTON (Reuters) - The number of Americans filing new claims for unemployment benefits fell for the second consecutive week last week, suggesting a sharp step-down in job growth in December was likely to be temporary.

The better labor market tone was also captured by a survey on Thursday showing an acceleration in manufacturing activity in

the Mid-Atlantic region, accompanied by a rise in factory jobs.

"We view the tepid December payroll gain as an aberration and expect job creation to look stronger in January," said John Ryding, chief economist at RDQ Economics in New York.

Initial claims for state unemployment benefits slipped 2,000 to a seasonally adjusted 326,000, the Labor Department said. That compared to economists' expectations for a fall to 328,000.

Job growth slowed sharply in December, with employers adding only 74,000 new positions. Nonfarm payrolls increased 241,000 in November and the retreat last month was blamed on cold weather.

In a separate report, the Philadelphia Federal Reserve Bank said its business activity index rose to 9.4 points this month from 6.4 in December. Any reading above zero indicates manufacturing expansion in the region, which includes factories in eastern Pennsylvania, southern New Jersey and Delaware.

A gauge of factory jobs surged this month, but workers saw a drop in hours on average. There was a slowdown in new orders.

Even as the economy gathers steam there is little sign of a broad pick-up in prices, keeping inflation pressures muted.

In another report, the Labor Department said its Consumer Price Index increased 0.3 percent after being flat in November. In the 12 months to December, consumer prices accelerated 1.5

percent after advancing 1.2 percent in November.

The increases were in line with economists' expectations.

LOW INTEREST RATES BIAS

Stripping out the volatile energy and food components, the so-called core CPI rose only 0.1 percent, slowing from a 0.2 percent gain in November.

That left its increase over the past 12 months at 1.7 percent, where it has now been for four consecutive months.

U.S. Treasury debt prices rose on the tame inflation picture, while the dollar was little changed against a basket of currencies. Stocks of Wall Street were trading off early highs.

The Fed targets 2 percent inflation, although it tracks a gauge that tends to run a bit below CPI.

The U.S. central bank has started reducing the pace of its monthly bond purchases, but persistently low inflation is expected to see it hold interest rates near zero for a long time even if the jobs market picks up significantly.

"With the amount of slack in the labor market, we do not anticipate any substantial acceleration in wage growth for quite some time," said Ethan Harris, co-head of global economics research at Bank of America Merrill Lynch in New York.

"We expect a patient and gradual end to the current pace of accommodation. We still believe the Fed will cease asset purchases by the end of 2014, announcing additional $10 billion cuts in buying at each policy meeting this year."

Average hourly earnings adjusted for inflation fell 0.3 percent in December. They rose only 0.2 percent from a year ago.

A 3.1 percent increase in gasoline prices was mostly behind the spike in inflation last month. The increase in gasoline was the largest since June and followed a 1.6 percent fall in November. Food prices rose 0.1 percent for a third month.

Within the core CPI, apparel prices posted their largest increase since June. They had declined for three consecutive months.

Rental inflation remained elevated in December. While medical care costs rose, prices for prescription drugs fell significantly last month.

There were increases in tobacco prices. New motor vehicle prices were flat, while prices for used cars and trucks fell.

"Low inflation looks set to continue in 2014," said Sam Bullard, a senior economist at Wells Fargo in Charlotte, North Carolina. "Prices for imported consumer goods have been flat or fallen in seven of the past eight months, which should keep downward pressure on the CPI in coming months."

(Reporting by Lucia Mutikani, additional reporting by Steven C Johnson in New York; Editing by Paul Simao)

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