WASHINGTON (Reuters) - The number of Americans filing for unemployment aid fell from a 14-month high last week, the latest sign the economy was picking up speed in the second quarter and likely would be healthy enough for the Federal Reserve to raise interest rates in June.
The economic outlook got a further boost from another report on Thursday showing a gauge of future activity jumped in April. The reports followed recent upbeat data on retail sales, home building and industrial production.
Minutes from the Fed’s April 26-27 policy meeting, published on Wednesday, showed most officials considered it appropriate to raise rates next month if data continued to point to an improvement in second-quarter growth.
The Fed raised its benchmark overnight interest rate in December for the first time in nearly a decade.
“The economy is coming back. This is further ammunition to our view that the Fed will restart the normalization process, either in June or July,” said Michael Strauss, chief economist at Commonfund in Wilton, Connecticut.
Initial claims for state unemployment benefits declined 16,000 to a seasonally adjusted 278,000 for the week ended May 14, the Labor Department said. That was the biggest drop since February and snapped a three-week string of increases.
Claims have now been below 300,000, a threshold associated with a strong job market, for 63 straight weeks, the longest stretch since 1973.
Jobless claims had risen since mid-April, with economists blaming a variety of factors, including the different timing of school spring breaks, which often makes it difficult to adjust the data around this time of the year.
An ongoing strike by Verizon (VZ.N) workers as well as possible disruptions to manufacturing activity in the wake of recent earthquakes in Japan have also been cited.
In a separate report, the Conference Board said its leading economic index increased 0.6 percent in April after being unchanged in March. Nearly all of the index’s 10 components, with the exception of consumer expectations, contributed to the rebound last month.
The dollar .DXY rose against a basket of currencies after the data. U.S. stocks fell sharply as worries about a June rate hike and a renewed decline in oil prices offset better-than-expected quarterly results from Wal-Mart (WMT.N). Prices for U.S. government debt were trading higher.
There were large declines last week in unadjusted claims for New York, Pennsylvania and Michigan, which had seen hefty gains in the prior week. The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, rose 7,500 to 275,750 last week.
The claims data covered the survey week for May’s nonfarm payrolls. The four-week average of claims increased 15,000 between the April and May survey periods, suggesting little change in employment gains after the economy added 160,000 jobs last month.
Economists warned that payrolls could take a hit in May as a result of an ongoing strike at Verizon (VZ.N). The roughly 40,000 striking workers would be considered unemployed as they would not have received a paycheck during the survey period.
“Striking workers will be considered off payroll for the May jobs report. We provisionally estimate that May payroll growth could be held down by around 40,000 by this effect,” said John Ryding, chief economist at RDQ Economics in New York.
In a third report, the Philadelphia Federal Reserve said its business conditions index fell to minus 1.8 this month from a reading of minus 1.6 in April. The index, which surged in March, has registered a negative reading in eight of the last nine months.
Details of the survey were mixed, with a measure of new orders contracting after being flat in April. Current shipments, however, rose 10 points and a gauge of inventories increased to a nine-month high. The employment measure improved 15 points this month, but remained negative for a fifth consecutive month.
Manufacturing remains constrained by the delayed pass-through of the U.S. dollar’s rally between June 2014 and December 2015, as well as the lingering effects of the oil price plunge and an inventory overhang.
A report on Monday showed factory activity in New York state contracted sharply in May after a sharp acceleration in April.
“Drags on the manufacturing sector could prove longer-lasting than had been suggested by the surveys’ sharp improvement in March,” said Jesse Edgerton, an economist at JPMorgan in New York.
Reporting by Lucia Mutikani; Editing by Paul Simao