The number of Americans filing for new unemployment benefits unexpectedly fell to a near four-year low last week, suggesting the labour market recovery was quickening.
Other data on Thursday showing solid expansion in factory activity in the Mid-Atlantic area this month and builders breaking more ground on new residential projects in January offered more evidence of a sustained momentum in the economy.
"The numbers add to the belief that the economy is shifting gears. There is just no number that is giving us a whole lot of trouble, except for consumer spending," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.
The reports are the latest in a series of fairly upbeat data and could prompt economists to further temper expectations of a sharp moderation in growth in the first quarter. Economists have also dialed down their expectations for another round of bond-buying or quantitative easing by the Federal Reserve.
Initial claims for state unemployment benefits dropped 13,000 to a seasonally adjusted 348,000, the lowest level since March 2008, the Labor Department said.
Economists polled by Reuters had forecast claims rising to 365,000. The four-week average of new claims, seen as a better measure of labor market trends, was the lowest since April 2008.
In a separate report, the Philadelphia Federal Reserve Bank said its business activity index rose to 10.2 this month from 7.3 in January as orders and shipments jumped.
Though factories in the region hired fewer workers this month, they increased hours for existing employees, which bodes well for wage growth. In addition, order backlogs are rising and factories are taking a bit longer to make deliveries.
"We are not seeing much indication that growth has slowed from the fourth quarter of 2011 to first quarter of 2012," said Gus Faucher, senior economist at PNC Financial Services Group in Pittsburgh, Pennsylvania.
The economy grew at a 2.8% annual pace in the last three months of 2011, with inventories accounting for two-thirds of the rise. That left economists worrying businesses will have little appetite to add more stocks with demand not that strong.
For now, the run of solid data continues. The Commerce Department reported that housing starts rose 1.5% to an annual rate of 699,000 units last month, beating economists' expectations for a 675,000-unit pace.
Starts were boosted by multi-unit buildings, reflecting growing demand for rental apartments as Americans move away from homeownership. Permits for future home construction rose 0.7% to a 676,000-unit pace in January.
Home building is expected to add to economic growth this year for the first time since 2005.
The data and news that the euro zone was on track to approve a second bailout package for Greece lifted US stocks. Prices for US Treasury debt fell, while the dollar rallied against the yen.
BRIGHTENING OUTLOOK
The data on employment, manufacturing and retail sales also have raised doubts on whether the US central bank will keep its pledge to hold interest rates at ultra low levels until at least through 2014. The Fed made its low rate commitment before January's employment report was released.
Minutes of the Fed's January 24-25 meeting released on Wednesday showed a few policymakers believed a third round of quantitative easing would be needed this year to support the US economy.
"Fed policy looks more and more at odds with a brightening economic outlook," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York.
"Our guess is they start normalising their low interest rate policy sometime early next year if the data keep running like this. The economy really doesn't seem to require it at this stage."
Last week's drop in new unemployment claims pushed them below the 350,000 level that economists normally associate with sustained strength in the labor market. Claims have declined for three straight weeks.
Job gains have exceeded 200,000 for two straight months and the unemployment rate dropped to a three-year low of 8.3% in January. Economists are cautiously optimistic that February will be another month of solid job gains.
Despite the improvement, considerable slack still remains. About 23.8 million Americans are either out of work or underemployed and there are no job openings for nearly three out of every four unemployed.
In a second report, the Labor Department said prices received by farms, factories and refineries edged up just 0.1% in January as food and energy costs fell. Wholesale prices dipped 0.1% in December.
But producer prices excluding food and energy rose 0.4% last month, the largest gain since July, after increasing 0.3% in December.
Wholesale prices outside of food and energy were pushed up by drugs costs, which accounted for about 40% of the increase. Higher prices for light motor trucks and household appliances also contributed.
