Jobless Claims Dissapoint, Jump Back Up to 445K

The US labor market got a rude surprise with today's weekly jobless claims. We saw the figure jump by 35K to 445K for the week ended January 1st. Lower jobless claims have been one of the main fundamental signals that the labor market is healing. Combining this with December's Non-Farm Payroll Report, it begs the questions if US economy at its current pace can make enough jobs to dent the unemployment problem.

Here's our FXTimes Graph of Jobless Claims

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Via Bloomberg: The number of first-time claims for unemployment insurance payments jumped in the first week of 2011 to the highest level since October as more Americans lined up to file following the holidays. Initial jobless claims rose by 35,000 to 445,000, according to Labor Department data released today.

Today's figures follow a report last week showing the U.S. added fewer jobs than forecast in December, underscoring the concern of Federal Reserve policy makers about the labor market. Economic growth may need to accelerate further and encourage companies to ramp up the hiring necessary to reduce the unemployment rate.

Some Good News in US Trade Data, Defict Narrows as Exports Gain

The US trade balance surprised forecasts, showing the trade gap narrowing to a 10-month low. Exports were up for a 3rd month, which means trade may either contribute less of a decline to growth in the 4th quarter, or actually could add to growth overall. It's a positive development as stronger exports is a good sign for the manufacturing sector, and global demand for US products. Overall exports were at their highest level in 2 years. The increase in imports was mainly driven by higher oil prices.

Via Bloomberg: Exports increased 0.8 percent to $159.6 billion, the most since August 2008. Demand for American goods from China reached a record, and purchases from Germany were the strongest in two years.

Imports increased 0.6 percent to $198 billion. The value of crude oil purchases increased to $19.8 billion from $18.9 billion in October. The price per barrel of imported crude reached the highest level since May. The trade gap with China was little changed at $25.6 billion, as U.S. demand for their goods also climbed. Growing American demand for computers made in China helped widen the U.S. deficit in advanced technological products to the highest level on record.

Producer Prices Rose 1.1% in December

Headline producer prices were 1.1% higher in December compared to a month ago. That's a pretty sharp rise, but if we look deeper we see that the core PPI was only up 0.2% - matching expectations. That means most of the increase comes on the back of volatile items such as energy and food.

Looking at annual terms, PPI was up 4.0%, sharper than expected, while the annual core-PPI came in a lower than expected 1.3%. While that was smaller than the forecast figure of 1.4%, it was higher than November's 1.2% gain.

The higher energy prices are a result of higher oil, and so while there is some inflationary pressure from commodities, it seems overall PPI prices remain pretty subdued.

What Does Today's Data Mean for USD?

The US Dollar has been weaker this week on the back of risk appetite in Europe as we had some positive developments in the Euro-zone sovereign debt saga. Today's reports show several things, and will be taken as a mixed bag.

1. The weaker labor market data will make analysts a bit more cautious about their projections for what US business are willing to do right now in terms of hiring. It's been slow and steady and perhaps a hope that US labor market may be turning a corner need some extra healthy skepticism. I still remain upbeat about US economy, but a thawing labor market would be a key component to changing the mind of the Fed. On this front - is the US labor market healing? - we took a step back today.

2. The trade data means that trade can perhaps finally add to US GDP growth in the 4th quarter. It's 2 months in a row that the trade balance has come in below expectations. It's a big goal of Obama administration to increase US exports, so a weaker US Dollar and stronger demand from emerging markets can perhaps keep this positive trend going.

3. Inflation data shows a pick up in energy prices, we saw that in trade data as well. But, core prices remain subdued. This shouldn't phase the Fed, but if oil prices keep climbing higher it will present bigger problems for US consumers and producers.

Again, a mixed bag. If the theme of the day remains higher equities and risk appetite, then these reports will not deter further USD selling.

Tomorrow we have another batch of US economic indicators including Retail Sales, Consumer Prices, Industrial Production and UMich Consumer Sentiment.