Unemployent claims falling, wholesale prices in check

— -- In the strongest signal yet of a strengthening job market, the number of people filing first-time claims for unemployment insurance fell to a 3 ½-year low last week.

Initial jobless claims dropped 19,000 to a seasonally adjusted 366,000, lowest since May 2008.

More significantly, the four-week moving average fell 6,500 to a 41-month low of 387,750. It has been below the critical 400,000 threshold for five of the past six weeks.

Jobless claims below that level often indicate monthly employment gains of about 150,000 — enough to lower the unemployment rate, now 8.6%. Job growth so far this year has averaged about 131,000 monthly.

"This raises hopes for job growth of 200,000, maybe stronger, in coming months," possibly as early as this month, says Wells Fargo economist Tim Quinlan.

Unemployment claims figures in December are often volatile and can be less reliable because of seasonal factors, such as the employment of temporary holiday workers. But the falling four-week average, along with other recent encouraging economic reports, all appear to reflect a strengthening job market, says economist Conrad DeQuadros of RDQ Economics.

For example, both a closely watched index of consumer attitudes about employment prospects and small business hiring plans surged last month.

"There's a lot of corroboration in other labor market indicators that suggest things are getting better," DeQuadros says.

Quinlan noted the recovery is still far less than robust and could be derailed by worsening economic turmoil in Europe. But he said an almost certain European recession would not significantly affect the U.S. if it's mild.

Some other economic reports Thursday were also encouraging. Measures of manufacturing activity in the New York and Philadelphia areas this month both rose more strongly than expected.

Industrial production, however, fell 0.2% in November, a sign that the recovery remains fragile. Economists said the decline in ouput at the nation's factories, mines and utilities, while not good news, followed steady gains over the previous six months.

"A return to sustained robust growth is unlikely given the many headwinds the economy faces," Stephen Wood, chief economist at Insight Economics, says in a research note.

Meanwhile, wholesale prices rose 0.3% in November, slightly more than expected, according to the Labor Department producer price index. But excluding volatile food and energy costs, prices edged up just 0.1%. Price increases for clothing, toys and furniture were offset by declines for sporting goods, floor coverings and jewelry. Economists widely expect inflation to slow next year, helping boost consumer spending.