US data shows small gains, monetary stimulus seen

Saturday, 23 October 2010 04:06 - - {{hitsCtrl.values.hits}}

WASHINGTON, (Reuters) - A batch of new U.S. data painted a picture of an economy stuck in slow-growth mode, reinforcing views the Federal Reserve will ease monetary policy further next month to try to reinvigorate the recovery.

New claims for jobless benefits dropped last week but remained at levels suggesting little improvement in the distressed labor market. Other reports showed only a modest rise in a gauge of future U.S. economic activity and a small gain in factory activity in the country’s Mid-Atlantic region.

The data fit in with other recent signs that have shown the economy is no longer deteriorating, although it does not appear to be getting much better either.

“This is an economy that is showing only faint signs of improvement at this point,” said Robert Dye, senior economist at PNC Financial Services in Pittsburgh.

Initial claims for state unemployment benefits fell 23,000 to 452,000 last week, the Labor Department said. The drop unwound most of a sharp jump in the previous week, but left claims above levels associated with a solid job market recovery.

The Fed has flagged high unemployment as one area of concern. Economists expect officials at the U.S. central bank to launch a second round of asset purchases in less than two weeks to drive borrowing costs down further and stimulate spending.

The Fed’s decision will be announced a day after the Nov. 2 congressional election, which is widely seen as a referendum on President Barack Obama’s performance on the economy. His Democratic party is seen facing large losses.

FACTORY ACTIVITY SLUGGISH

In a second report on Thursday, the Philadelphia Federal Reserve Bank said its business activity index rose to 1.0 in October from minus 0.7 in September.

While that indicated factory activity in the mid-Atlantic region had perked up a little, the reading came in below economists’ expectations for a gain to 2.0. A reading above zero indicates expanding activity.

Separately, the Conference Board’s Leading Economic Index rose 0.3 percent last month after a 0.1 percent gain in August.

The rise was in line with market expectations but pointed to only subdued growth ahead.

“More than a year after the recession ended, the economy is slow and has no forward momentum,” said Ken Goldstein, an economist at the private research group.

The data had little impact on U.S. stocks, which ended modestly higher on strong corporate earnings from the likes of Caterpillar Inc, United Parcel Service Inc and McDonald’s Corp.

Stock investors were also heartened by growth and inflation data from China, which suggested the world’s second-largest economy was far from overheating and that an interest rate rise there this week may be enough for now.

Prices for U.S. government debt fell, while the dollar rebounded against the euro.

The dollar has been under pressure from expectations the Fed, which has already bought about $1.7 trillion in bonds to stimulate the economy, will ease monetary policy further.