Jobs, Inflation Data May Not Be Reason to Rejoice Just Yet

The U.S. cost of living rose, while the share of Americans filing for jobless benefits and homebuilder confidence dropped.

Young businessman with his head in his hands while sitting on a bench.

The number of Americans filing for unemployment is at its lowest since May 2007, though higher consumer pricing figures don't bode well for those whose incomes have stagnated.

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Thursday presented a mixed bag of reports on the economy that while were in part positive, may not be anything to write home about just yet. Among other reports, the cost of living in the U.S. edged up in April, the share of Americans filing for jobless benefits plunged and homebuilder confidence dropped to its lowest reading in a year.

The weak data, combined with disappointing earnings reports from retailers like Wal-Mart Stores, Inc. and Kohl’s Corp., sent the Dow Jones Industrial Average spiraling more than 200 points early Thursday afternoon.

The consumer price index, which measures the average cost of a basket of consumer goods, rose 0.3 percent, led by higher gas and food prices, and was the biggest climb since June, according to the Department of Labor. A separate report showed that for the week ending May 10, the number of Americans filing unemployment claims declined to 297,000, the lowest since May 2007.

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The claims numbers may signal some growth in the labor market, but the higher consumer pricing figures, which could be the result of circumstances like weather, don’t bode well for Americans whose incomes have stagnated.

“As for the rise in prices at the pump and grocery stores, this will actually cut into discretionary spending at restaurants and on leisure,” Diane Swonk, chief economist at Chicago-based Mesirow Financial, wrote in an email. “The flat earning data is particularly worrisome as it suggests that wages remain stagnant amid slack in the labor market.”

Recent employment data from the Labor Department showed hourly earnings for non-farm jobs were unchanged in April at $24.31 and have edged up just 1.9 percent in the past year.

Furthermore, the rise in prices for items like food were for “for all the wrong reasons,” Swonk wrote in a blog post, such as the drought out West and a late start to the planting season in the Midwest.

Cost of living figures suggest inflation – the general rate at which prices of goods and services rise – may be picking up, too. Too-low inflation, while it does increase consumers’ spending power, is generally a sign of a sluggish economy and is something the Federal Reserve watches closely.

The Fed targets the personal consumption expenditure index, which accounts for the trade-offs in their actual spending like buying pasta and rice instead of meat and dairy, Swonk noted. That index rose 1.5 percent in April, which is far below the central bank’s target rate of 2 percent. So the Fed, Swonk said, still has reason for concern.

Another worry about the rise in inflation is that it could rise too quickly for the Fed to recognize in time, Stephen Stanley, chief economist at Stamford, Connecticut-based Pierpont Securities, wrote in a research note.

“The danger is that, as has so often been the case over the years, like the frog enjoying the nice steam bath in the pot, by the time they recognize a problem, it will be too late,” he said.

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Today’s job market figures drew mixed criticism. Though the number of Americans filing to receive unemployment benefits fell to a seven-year low, Pierpont’s Stanley said in an email to clients that he refuses to get excited about one week’s numbers.

“As has been the case for a long time, the issues in the labor market center on anemic hiring, not excessive layoffs,” he said.

The claims numbers have been trending lower, however, which could point to pickup in the job market, says Jim O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York.

“The net of it is the labor market is improving. Last year, employment grew at 194,000 a month and jobless claims averaged 343,000 per week,” he says. “Absolutely I think it’s something to celebrate.”

Another report Thursday cast a shadow on the already worrisome housing market. The National Association of Home Builders reported that builder confidence for single-family homes sank to its lowest since May 2013, which was “disappointing for sure,” O’Sullivan says.