Japan tax hike lifts inflation to 23-year high

TOKYO (AP) — Japan's consumer prices rose 3.2 percent from a year earlier in April to the highest level since 1991, the government said Friday, largely due to a sales tax increase that is expected to dent growth this quarter.

Other April data for the world's third-largest economy were largely in line with forecasts. Industrial production fell 2.5 percent from a year earlier and household spending sank 4.6 percent. Unemployment was 3.6 percent, the same as in March.

Prime Minister Shinzo Abe's policies aimed at ending a deflationary slump that has slowed growth for nearly two decades have made some headway, though the inflation rate remains well below the 2 percent target set by the central bank and government when the tax hike is factored out.

Japan raised its sales tax to 8 percent in April from 5 percent. Japan's central bank estimates that 1.7 percentage points of the inflation rate in April could be attributed to the tax hike. The 3.2 percent figure is for the core consumer price index, which excludes fresh food.

In its latest assessment of Japan's recovery, the International Monetary Fund said Friday that Japan appeared to be weathering the sales tax increase and exports are expected to begin picking up as demand overseas rebounds. It forecast that inflation would remain modest at 1.1 percent in 2014.

But it cautioned that Japan needs deep, structural reforms to support growth.

"Near-term risks to the outlook are balanced, but the sustainability of the recovery over the medium term is at risk," it said.

Consumers and businesses ramped up spending ahead of the tax increase, boosting demand temporarily. The economy is expected to contract or at least slow sharply this quarter.

Economists say wage increases are needed to ensure the strong consumer demand that would prompt companies to begin investing more for future growth.

Shortages of labor in some areas, such as construction and trucking, have been pushing prices and to a limited extent wages higher. But so far overall incomes have not kept pace with the tax hike and price increases.

Prices in Japan rose partly due to higher costs for energy as the yen weakened against the dollar because of massive monetary easing. Many businesses raised prices or offered less for the same price to compensate for their own higher costs.

Revving up consumer demand through stronger purchasing power will be crucial, said Stephan Danninger, Asia and Pacific division chief for the International Monetary Fund.

"The need for inflation to be meaningful in contributing to a stable and faster growing economy is through demand and not through the input of higher prices," he told a seminar in Tokyo on Friday.

The dollar is now buying about 101 yen compared with 80 yen two years ago. But the yen's recent stabilization near 101 to the dollar means inflation is getting less of a push from the exchange rate than it did last year.

"The sharp fall in import price inflation points to a slowdown in consumer inflation in coming months, which should provide some relief to households' battered finances," Capital Economics analyst Marcel Thieliant said in a commentary.

Massive monetary easing by the Bank of Japan has mainly given the government leeway to work on reforms needed to enhance Japan's competitiveness in the longer run and to repair government finances, said Masaaki Kanno, chief economist at JP Morgan in Tokyo.

The April 1 tax hike and a further 2 percentage point increase planned for next year are part of the government's effort to bring under control Japan's huge public debt, which is more than twice the size of the economy.

"One of the most important roles is for the BOJ to buy time," said Kanno.

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U.S. jobless claims fall, snap three-week upward trend

A help wanted sign hangs in the window of a cafe in the Brooklyn borough of New York, March 7, 2014.

The number of Americans filing new claims for unemployment benefits fell more than expected last week, indicating the labor market was strengthening despite a run-up in applications in prior weeks.

Initial claims for state unemployment benefits declined 26,000 to a seasonally adjusted 319,000 for the week ended May 3, the Labor Department said on Thursday. The decline snapped three straight weeks of increases.

Claims for the week ended April 26 were revised to show 1,000 more applications received than previously reported.

Economists polled by Reuters had forecast first-time applications for jobless benefits falling to 325,000 last week.

Claims are volatile around this time of the year as the timing of Easter and school spring breaks can throw off the model that the government uses to smooth the data for seasonal fluctuations.

The four-week moving average for new claims, considered a better measure of underlying labor market conditions as it irons out week-to-week volatility, rose 4,500 to 324,750.

Despite the increase, the four-week average remains at levels consistent with an improving labor market.

A Labor Department analyst said there were no special factors influencing the state level data.

The labor market is firming with employment growth averaging more than 200,000 jobs per month in the first four months of the year. Employers in April added 288,000 jobs to their payrolls, the most since January 2012.

The unemployment rate dropped to 6.3 percent last month, compared to 6.7 percent at the end of 2013. The decline has also been aided by people dropping out of the labor force.

Federal Reserve Chair Janet Yellen said on Wednesday conditions in the labor market had improved "appreciably," but she added they remained still far from satisfactory.

The U.S. central bank has been scaling back its monetary stimulus and is expected to conclude its monthly bond-buying program by the end of 2014.

The Fed, however, is not expected to start raising overnight interest rates, currently near zero, before the second half of 2015.

The claims report showed the number of people still receiving benefits after an initial week of aid fell 76,000 to 2.69 million in the week ended April 26.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

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Job market showing stronger growth

Hiring soared in April as the US economy created the most jobs in two years, another sign the plodding recovery is finally shaking off the last recession and accelerating toward a stronger expansion.

Employers added 288,000 jobs last month, spread across industries from construction to retail to health care to professional services, the Labor Department reported Friday. The unemployment rate fell nearly a half-point, to 6.3 percent, the lowest since Sept. 2008.

“The job market is kicked in to a higher gear,” said Mark Zandi, chief economist at Moody’s Analytics, a forecasting firm in West Chester, Pa. “It’s meaningful.”

The jobs report follows other positive economic reports. Consumer confidence is near a six-year high, business spending on equipment is increasing, and home prices are on the rise.

The strongest growth in hiring nationally came from companies that provide technology, accounting, and other business services, a particularly important sector in the Massachusetts economy. Another of the state’s key sectors, health care and education, also experienced strong job gains nationally.

The state will release employment statistics for April in about two weeks, but hiring in Massachusetts has also shown signs of picking up. Last month, employers in the state added more than 8,000 jobs, pushing overall employment to an all-time high of about 3.4 million jobs.

Kip Hollister, founder of the Boston staffing firm Hollister, Inc., said she is seeing signs that the job market is improving for workers in Massachusetts. Companies that not too long ago were mostly hiring temporary or contract workers are now seeking permanent employees; the demand for workers to fill permanents positions is up about 8 percent from a year ago at her business, Hollister said.

At the same time, employers are starting to find that if they delay too long in making offers to candidates, they may lose those prospects to competitors. “It does show that the times are changing,” Hollister said.

The nation has added more than 200,000 jobs in each of the past three months, and has regained all the private sector jobs lost in the last recession. The national jobless rate has dropped more than a percentage point in the last year.

But analysts said optimism about the economy should still be tempered. It will likely take another two years to reach the 5.5 percent rate considered full employment. Average hourly earnings were flat in April and only up by 1.9 percent over the year, barely keeping up with inflation.

In addition, much of last month’s decline in the unemployment rate was the result of more than 800,000 workers giving up work searches and dropping out of the labor force. Only those who seek work are counted by the Labor Department as unemployed.

Some economists attributed the drop in labor force participation to the expiration of long-term unemployment benefits, which may have removed an incentive for some to continue job searches. Unemployed workers must actively seek work to receive benefits.

There are “people in 30s and 40s who normally should be working are not working,” said Maury N. Harris, an economist with UBS Securities in New York.

But overall, the economy looks to be back on track, said Doug Handler, chief US economist IHS Global Insight, a Lexington forecasting firm. The Federal Reserve’s decision to continue to pare back stimulus measures indicates the policy makers have underlying confidence that the economy is strengthening, Handler said.

The central bank last week said it would reduce its monthly bond buying program, created to hold down long-term interest rates down and spur investment and hiring, by another $10 billion to $45 billion. Policy makers, however, have signaled they will move slowly in withdrawing from the economy and hold the Fed’s key short-term rate near zero for some time.

Deirdre Fernandes can be reached at deirdre.fernandes@globe.com. Follow her on Twitter @fernandesglobe.

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S&P 500 ends at record on jobless data

New York - US stocks mostly rose on Thursday, with the S&P 500 closing at yet another record on better-than-expected jobless claims data and the European Central Bank's move to keep rates unchanged.

But the overall sentiment was cautious ahead of Friday's all-important US nonfarm payrolls report and tensions between Ukraine and Russia.

The CBOE Volatility Index or VIX, Wall Street's so-called fear gauge, ended up 2.3 percent at 14.21.The VIX generally moves inversely to the performance of the S&P 500 and is often used to hedge against a market decline.

Trading volume was also lower than average, with about 6.4 billion shares traded on US exchanges, according to data from BATS Global Markets, below the daily average of about 7 billion in the past month.

“We had a bit of a selloff in midday session and late afternoon, but the fact the S&P 500 managed to set another record shows how much resistance this market has to geopolitical overhang that is clearly not over, resistance to bad news,” said Tim Ghriskey, chief investment officer of Solaris Asset Management in Bedford Hills, New York.

Thursday's milestone marked the S&P 500's fourth record closing high over the past six sessions.

Weekly applications for US unemployment insurance fell to 323,000, the lowest in three months, a sign of strength in a labour market that has been hobbled by severe weather. New orders for US factory goods, however, fell more than expected in January and shipments also slipped, adding to signs of a recent slowdown in manufacturing activity.

Friday's nonfarm payrolls report, due at 8.30am EST (13h30 GMT), is likely to show job growth in the United States picked up enough in February to encourage the Federal Reserve to continue scaling back its monetary stimulus. But the gain was likely to be tepid, given the unrelentingly harsh winter.

The day's biggest gainers were stocks in basic materials, financial and industrial sectors, often associated with strong economic fundamentals. The S&P basic materials index was up 0.4 percent, the S&P financial index was up 0.7 percent and the S&P industrials index was up 0.6 percent.

But the Nasdaq 100 fell 0.2 percent, led lower by Staples, which lost 15.3 percent to $11.35. The largest US office supplies retailer forecast a decline in sales. Staples also said it would close up to 225 stores in the United States and Canada by 2015.

The Dow Jones industrial average rose 61.71 points or 0.38 percent, to end at 16,421.89. The S&P 500 gained 3.22 points or 0.17 percent, to finish at 1,877.03. The Nasdaq Composite dropped 5.848 points or 0.13 percent, to close at 4,352.125.

Crimea's parliament voted to join Russia and its Moscow-backed government set a referendum for 10 days' time on the decision in a dramatic escalation of the crisis in the Ukrainian Black Sea peninsula.

US President Barack Obama took steps to punish those involved in threatening Ukraine while European Union leaders agreed to suspend visa and investment talks with Russia.

An index of Moscow stocks lost more than 2 percent after the vote in Crimea, but pared the losses and closed down 1 percent. The rouble weakened 0.3 percent versus the US dollar. A US-traded Russian ETF fell 1.1 percent to $23.37.

The European Central Bank decided not to take any action at its meeting on Thursday because economic and monetary conditions had not changed enough to warrant it. The euro hit its highest level against the US dollar since late December.

Among individual stocks, Costco Wholesale dropped 2.8 percent to $113.26 after the warehouse retailer reported a bigger-than-expected 15 percent decline in quarterly profit as unusually deep discounting in the holiday shopping season hurt margins. - Reuters

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U.S. jobless claims at three-month low

A job-seeker completes an application at a career fair held by civil rights organization National Urban League as part of its annual conference, in Philadelphia July 25, 2013.

(Reuters) - The number of Americans filing new claims for unemployment benefits fell more than expected and hit a three-month low last week, a sign of strength in a labor market that has been hobbled by severe weather.

Other data on Thursday showed a second straight month of declines in new factory orders in January, likely as harsh weather disrupted activity in some regions of the country.

Initial claims for state unemployment benefits dropped 26,000 to a seasonally adjusted 323,000, the Labor Department said on Thursday. That was the lowest level since the end of November and the drop more than unwound the prior week's rise.

"Initial claims returned to a more normal level, consistent with a healthy labor market turnover," said Yelena Shulyatyeva, an economist at BNP Paribas in New York.

Economists had forecast first-time applications for jobless benefits falling to 338,000 in the week ended March 1.

The four-week moving average for new claims, considered a better measure of underlying labor market conditions as it irons out week-to-week volatility, slipped 2,000 to 336,500.

The claims data has no bearing on Friday's employment report for February as it falls outside the reference period for the survey. While unseasonably cold weather has dampened hiring in recent months, the drop in new filings for jobless benefits suggests labor market fundamentals remain strong.

Nonfarm payrolls are forecast to have increased by 150,000 jobs in February, according to a Reuters survey of economists, up from the weather-depressed gains of 113,000 in January and 75,000 in December.

Freezing temperatures have also weighed on home building and appeared to be a drag on manufacturing as well.

In a separate report, the Commerce Department said new orders for manufactured goods declined 0.7 percent after falling 2.0 percent in December. Shipments fell for a second straight month in January.

Factory activity is also being held back as businesses place fewer orders while working through stocks of unsold goods accumulated in the second half of 2013.

Factory orders fell across most categories in January, with big declines in transportation, primary metals and electrical equipment, appliances and components. Orders for machinery also fell.

SLOWER PRODUCTIVITY

A second report from the Labor Department suggested businesses would probably need to step up hiring to maintain output, after productivity in the fourth quarter was revised down sharply.

Productivity rose at a 1.8 percent annual rate instead of the previously reported 3.2 percent pace. Productivity, which measures hourly output per worker, increased at a 3.5 percent pace in the third quarter.

"Slower productivity might push employers to boost hiring," said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto.

Economists had expected fourth-quarter productivity growth would be revised down to a 2.5 percent rate. Part of the weakness in productivity reflects sluggish economic growth.

The government last week cut its estimate of fourth-quarter gross domestic product growth to an annual pace of 2.4 percent from the previously estimated 3.2 percent rate.

For all of 2013, productivity increased 0.5 percent rather than 0.6 percent. That was the smallest gain since 1993 and compared to a 1.5 percent rise in 2012.

Unit labor costs - a gauge of the labor-related cost for any given unit of output - fell at a revised 0.1 percent rate in the fourth quarter, still showing weak wage-related inflation pressures in the economy. They had previously been reported to have dropped at a 1.6 percent rate.

Unit labor costs declined at a 2.1 percent rate in the third quarter. They were up 1.1 percent in 2013, the weakest reading since 2010.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

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