Reports Point to an Improving Economy

Economic data released Thursday reflected a favorable inflation outlook, solid economic growth and a firmer labor market.

A decline in new jobless claims and a jump in the employment component of a service sector industry survey helped fortify already entrenched expectations that the Labor Department’s February employment report to be released today would show solid job growth.

A government report that U.S. productivity was faster than expected in the fourth quarter suggested that inflation in the longer term would be subdued, analysts said.

For the fourth quarter, the revised jump of 2.1% in nonfarm productivity helped push unit labor costs down more sharply than economists had expected.

“This makes the market less fearful about inflation and the Fed raising rates faster,” said Gemma Wright, director of market strategy at Barclays Capital in New York.

Complementing the news on well-controlled inflation, an industry survey showed that the huge U.S. service sector, which accounts for about 80% of the economy, grew in February. Hiring in the sector accelerated, reaching its highest level in the seven-year history of the Institute for Supply Management’s non-manufacturing survey.

The government also reported that initial claims for unemployment benefits fell by 1,000 last week, suggesting that the labor market was steadily recovering.

Economists polled by Reuters estimated that 220,000 net new jobs were added to U.S. payrolls in February, up from the 146,000 created in January.

The government revised business productivity in the fourth quarter up to 2.1% from the 0.8% first reported. Economists had expected a revision up to 1.5%.

This helped push the growth in unit labor costs down to a revised 1.3% from 2.3% originally. Economists had expected a revision to 1.9%.

The Institute for Supply Management’s non-manufacturing index edged up to 59.8 in February from 59.2 in January, in line with economists’ expectations.