WASHINGTON, June 12 (Reuters) - The number of Americans filing new applications for unemployment benefits held at an eight-month high last week, consistent with easing labor market conditions, while slowing domestic demand helped to restrain producer prices in May.
In the absence of economic uncertainty caused by President Donald Trump's aggressive tariffs on imported goods, the softening labor market conditions and benign producer inflation reported by the Labor Department on Thursday would support a move by the Federal Reserve to resume its interest rate cuts soon. The data was released a day after the Labor Department reported a moderate rise in consumer prices in May.
Despite the tamer inflation readings, economists expected inflation pressures to start building up from June through the second half of the year as businesses pass on import duties to consumers. Surveys, including from the U.S. central bank, have suggested higher prices are coming.
The Fed is expected to leave its benchmark overnight interest rate in the 4.25%-4.50% range at the end of its two-day policy meeting next Wednesday.
"But it won't be the tariffs in place now that prevent the Fed from cutting rates next week," said Chris Low, chief economist at FHN Financial. "It is the chance trade talks might collapse and tariffs might jump in coming months, causing a supply shock that has the Fed sidelined."
Initial claims for state unemployment benefits held steady at a seasonally adjusted 248,000 for the week ended June 7. Economists polled by Reuters had forecast 240,000 claims for the latest week. Claims could remain elevated, with the school year ending this month as some states like Minnesota allow non-teaching staff to collect benefits during the summer holidays.
Though there have been no widespread layoffs as employers hoard workers in an uncertain economic environment, the labor market is losing steam. An immigration crackdown by the White House is also slowing employment gains. Nonfarm payrolls increased by 139,000 jobs in May, down from 193,000 a year ago.
A lagging measure of employment, the Quarterly Census of Employment and Wages (QCEW), has suggested a much slower pace of job growth between April 2024 and December 2024 than reported in the survey of establishments from which the nonfarm payrolls data is compiled. Economists said that data partly reflected reduced labor supply because of immigration restrictions imposed by former President Joe Biden's administration in mid-2024.
The labor pool could continue to decline as the Trump White House ramps up deportations. The QCEW data is derived from reports by employers to the state unemployment insurance programs. Economists said the data raised the possibility that payrolls could be revised substantially down from April 2024 through May 2025. Much would, however, depend on the QCEW data for the first quarter.
"All things considered, we think the 2025 benchmark revision is most likely to revise down job gains from April 2024-March 2025 by 800,000 to 1.125 million, with the range for August's preliminary benchmark announcement about 200,000 higher," said Jonathan Millar, senior U.S. economist at Barclays.
"This would trim monthly payroll gains over the benchmark period by about 65,000-95,000 per month relative to the current estimate of approximately 150,000 per month."
Easing labor market conditions were reinforced by the claims report, which also showed the number of people receiving benefits after an initial week of aid, a proxy for hiring, increased 54,000 to a seasonally adjusted 1.956 million during the week ending May 31, the highest level since November 13, 2021. Recently laid-off workers are struggling to find work.
Stocks on Wall Street were trading higher. The dollar fell against a basket of currencies. U.S. Treasury yields dropped.
GOODS PRICES RISE
A separate report from the Labor Department's Bureau of Labor Statistics showed the producer price index for final demand rose 0.1% in May after a revised 0.2% decline in April. Economists had forecast the PPI would rise 0.2% after a previously reported 0.5% drop in April. In the 12 months through May, the PPI advanced 2.6% after rising 2.5% in April.
Wholesale goods prices increased 0.2% after gaining 0.1% in April. Gasoline prices rebounded 1.6% while the cost of food edged up 0.1% amid a 1.4% increase in egg prices. Excluding food and energy, goods prices rose 0.2%, accounting for more than 80% of the increase in the cost of goods.
Fresh fruit and vegetable prices fell, baffling some economists.
"It is hard for me to understand the PPI figures," said Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets. "One would think that if there were any items in the economy for which prices would be affected by tariffs in May, it would have been fresh fruits and vegetables. My grocery shopping experience is not at all consistent with these results."
There were, however, some signs of tariff-related price increases. Prices for finished durable consumer goods jumped 0.4% after rising 0.2% for three straight months.
Services prices edged up 0.1% after falling 0.4% in April. A 0.4% rise in trade services, which measure changes in margins received by wholesalers and retailers, was partially offset by a 0.2% decline in transportation and warehousing services.
Airline fares fell 1.1%, but prices for hotel and motel rooms rebounded 1.4%. Portfolio management fees decreased 1.0%. The cost of hospital outpatient care fell 0.3%, while doctor visits were 0.2% more expensive.
Portfolio management fees, healthcare, hotel and motel accommodation and airline fares are among the components that go into the calculation of the core Personal Consumption Expenditures Price Index, one of the inflation measures tracked by the Fed for its 2% target.
With the CPI and PPI data in hand, economists estimated core PCE inflation increased 0.1% in May for the third straight month. In the 12 months through May, core PCE inflation was forecast to rise 2.6% after gaining 2.5% in April.
"There are some disinflationary forces, including a softening labor market," said Ryan Sweet, chief U.S. economist at Oxford Economics. "But the Fed needs to carefully monitor whether businesses opt to lay off workers to cut costs because they're eating more of the tariffs than anticipated."
Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Paul Simao
