THE ECONOMY IS STRONG AND THAT'S BAD NEWS FOR LIBERALS.

[Ronnie Raygun]

http://news.myway.com/top/article/id/63342|top|05-06-2004::14:05|reuters.html

Jobless Claims Hit 2000 Low

May 6, 1:49 PM (ET)

By Alister Bull
WASHINGTON (Reuters) - America's employment outlook brightened on Thursday after the government said jobless claims dropped last week to their lowest since 2000, bolstering expectations for strong numbers in the April jobs report.

U.S. Treasury bond yields hit a two-year high on the unexpectedly rosy number and the dollar climbed 1 percent against the yen as markets bet heavily the Federal Reserve will hike interest rates this summer as the economy warms.

The picture of a better jobs climate was also backed by an unexpected increase in unit labor costs in the first quarter, alongside respectable productivity growth of 3.5 percent.

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.

Wall Street analysts had forecast a slight fall in claims to 335,000 from a revised 340,000 the previous week.

Grant Wilson, vice president of foreign exchange at Mellon Bank in Pittsburgh, said the jobless numbers were a good omen on the eve of the April employment report.

"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 creation of 173,000 new jobs. 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?

"The abundance of risks to our forecast of an employment gain of 150,000 for April is to the upside," Bank of America economist Gary Bigg warned clients in a note.

In Thursday's data, in addition to lower initial claims the four-week moving average of insurance filings, which smooths weekly fluctuations to provide a better picture of 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 points in a positive direction for the jobs market since the number had been indicating that while layoffs had slowed, firms were not rushing to hire new workers and had been utilizing greater productivity to meet rising demand.

Labor 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 likely will take note of the uptick in costs.

The central bank is expected to hike interest rates for the first time in four years in the months ahead. However, after a regular meeting on Tuesday at which it left rates at a 1958-low of 1 percent, it announced it would be "measured" in removing policy accommodation.