(Reuters) - U.S. jobless claims jumped to their highest level since October last week while food and energy costs lifted producer prices in December, pointing to headwinds for an economy that has shown fresh vigor.
However, a surge in exports to their highest level in two years helped narrow the U.S. trade deficit in November, an encouraging sign for fourth-quarter economic growth.
Despite a string of recent data that had signaled a pickup in the economy's momentum, the figures on Thursday showed the job market continues to struggle.
The number of Americans filing for first-time unemployment benefits rose unexpectedly to 445,000 from 410,000 in the prior week, a Labor Department report showed. It was the biggest one-week jump in about six months and confounded analyst forecasts for a small drop to 405,000.
The jobs data weighed on U.S. stocks, which were off slightly in late morning. Government debt prices were trading little changed as concerns about Europe's debt struggles helped support the market.
"The jobless number highlights the patchy recovery we've seen in the job market and reinforces that it will be a slow process bringing down the jobless rate," said Omer Esiner, market analyst at Commonwealth Foreign Exchange in Washington.
The rebound in benefit claims came in the wake of the holidays, which may have hindered new applications and created a backlog. Claims, which peaked around 650,000 in April of 2009, had been on a downward trajectory, dipping below 400,000 for the first time in two years during the week of Christmas.
The four-week moving average of new claims, which strips out short-term volatility to provide a better sense of underlying trends, rose by 5,500 last week to 416,500.
A separate report from the Philadelphia Federal Reserve Bank showed factory activity in the U.S. Mid-Atlantic region accelerated less in December than originally reported.
FOOD GETS PRICIER
As last year drew to a close, food and energy costs were rising briskly at the wholesale level despite a tame underlying inflation trend.
U.S. producer prices climbed 1.1 percent in December after a 0.8 percent rise in November, according to another Labor Department report. Economists had been looking for a repeat of that 0.8 percent advance in December.
Inflation excluding food and energy, however, rose just 0.2 percent, in line with forecasts. That left the year-on-year gain in core producer prices at 1.3 percent, just below analyst estimates, helping tame inflation fears.
The rising prices producers receive ultimately could put upward pressure on retail prices, acting like a tax on consumers that could slow growth. Up to now, companies have not been able to pass increasing costs onto consumers because of weak demand, but that too has consequences.
"Eventually this means corporate profits could be squeezed," said Robert Dye, senior economist at PNC Financial Services in Pittsburgh.
A recent spike in global food costs has raised fears of a crisis in the poorer corners of the developing world. World food prices hit a record high last month, outstripping the levels that sparked riots in several countries in 2008, and key grains could rise further, the United Nations' food agency said recently.
On a more positive note, the U.S. trade gap narrowed to $38.3 billion in November from $38.4 billion in October, the Commerce Department reported. Analysts had expected it to widen to $40.5 billion.
November's deficit was the slimmest since January 2010. Exports totaled $159.6 billion, the highest since August 2008 -- just weeks before the bankruptcy of Lehman Brothers touched off a trade-crushing global panic.
Exports to China in November totaled a record $9.5 billion. Still, they were swamped by rising imports that pushed the politically touchy U.S. shortfall with China to $25.63 billion.
Chinese President Hu Jintao meets with President Barack Obama in Washington next week, and trade issues -- and what the United States calls China's "substantially undervalued" exchange rate -- will be high on the agenda.
TOUGH SELL
The split between weak underlying inflation and high food and energy prices makes it harder for Federal Reserve officials to argue publicly that inflation is not a threat. A fear of inflation being too low has underpinned the Fed's efforts to support the economy by purchasing government bonds.
Another key factor is the bleak jobs picture, not helped by the Labor Department data.
The number of Americans who continued to claim benefits after an initial week of aid did retreat sharply to 3.88 million from 4.13 million, offering some reason for hope.
Still, the total number of Americans on benefit rolls, including those receiving extended benefits under emergency government programs, jumped to 9.19 million from 8.77 million.
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