Economic Reports Point to Continued Strong Expansion

The number of people signing up for unemployment benefits dropped last week, and a closely watched gauge of future economic activity rose more than expected in May, suggesting the U.S. economy might continue a sturdy expansion through the summer.

In another sign of a broadening recovery, the Labor Department’s producer price index, a measure of prices before goods reach store shelves, posted the largest increase in more than a year. Although that raised some concerns about inflation, it also indicated that wholesale demand for goods was strong enough to allow producers to raise their prices.

The Labor Department reported Thursday that applications filed for unemployment insurance fell a seasonally adjusted 15,000 to 336,000, the lowest level since May 8.

Meanwhile, the Conference Board said its composite index of leading economic indicators increased 0.5% to 116.5 in May following a 0.1% rise in April. The closely watched gauge suggests the U.S. economy will continue expanding into the fall. Analysts had expected a 0.4% increase in May.

The figures “reflect a robust economic environment this spring and point to more of the same this summer,” said Ken Goldstein, an economist at the New York-based business group.

The Labor Department said its producer price index rose 0.8% in May following a 0.7% rise in April. It was the largest increase since a 1.3% jump in March 2003.

Mark Vitner, senior economist at Wachovia Securities in Charlotte, N.C., said “it may be the last blast of really large price increases,” noting that crude oil prices have come down in recent weeks and that other commodity prices, including lumber, have been softening.

The big question is how the Federal Reserve will read the latest data when it meets at the end of the month to review its interest rate policy.

“The real debate is whether this is a significant increase we’re seeing here that has to be met with a more aggressive posture from the Federal Reserve,” said Anthony Chan, senior managing director and chief economist at Banc One Investment Advisors in Columbus, Ohio. “I don’t see that in these numbers.”

Federal Reserve Chairman Alan Greenspan has been sanguine about inflation, too. He told Congress this week that he was not worried that the country was on the brink of an unwanted surge in inflation. Any rate increases by the Fed would be at a measured pace unless economic conditions change, he said.

Economists widely expect the Fed to boost short-term interest rates for the first time in four years at its next two-day meeting, which starts June 29.

The Fed’s key short-term interest rate is at a 46-year low of 1%. Most economists are expecting a quarter-point increase.

The Labor Department’s inflation report indicated that, excluding energy and food prices, “core” wholesale prices rose 0.3% in May, after a 0.2% rise the month before.

The readings on overall wholesale prices, as well as the core rate of inflation, exceeded the expectations of economists, who had forecast a 0.6% increase in the PPI and a 0.2% rise in core prices.

In May, wholesale prices for energy products rose 1.6% for the second month in a row. The price of crude oil, which peaked at around $42 a barrel in late May, is expected to ease later this year, analysts say. That should help energy prices calm down, they say.

Food prices, which are also being pushed higher because of greater transportation costs resulting from high fuel prices, rose 1.5% in May, following a 1.4% advance in April.