New applications for US unemployment benefits fell last week, pointing to sustained labour market strength despite a sharp slowdown in job growth in March.
While other data on Thursday showed import prices were flat in March amid a sharp drop in the cost of petroleum products, underlying imported inflation pressures are steadily rising. This together with a tightening labour market strengthens expectations inflation will gain steam this year.
Economists say a trade war between the United States and China could fan price pressures and push the Federal Reserve on to a more aggressive path of interest rate increases. Washington and Beijing have threatened each other with tens of billions of dollars' worth of tariffs. The Fed raised interest rates last month and forecast at least two more rate hikes this year.
"As long as we don't get into a trade war where tariffs are slapped on all sorts of things, the Fed should be able to maintain its slow tightening process," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.
"But tit-for-tat tariffs would raise prices and that would create real concerns at the Fed."
Initial claims for state unemployment benefits dropped 9,000 to a seasonally adjusted 233,000 for the week ended April 7, the Labour Department said. Economists polled by Reuters had forecast claims falling to 230,000 in the latest week.
Claims tend to be volatile around this time of year because of different timings of the Easter and school spring breaks, which can throw off the model that the government uses to smooth the data for seasonal fluctuations.
The four-week moving average of initial claims, viewed as a better measure of labor market trends as it irons out week-to-week volatility, rose 1,750 to 230,000 last week.
The economy created 103,000 jobs in March, the fewest in six months. Economists largely dismissed the slowdown as payback after hefty job gains in February. They also blamed cooler temperatures for the moderation in hiring.
The labor market is considered to be near or at full employment. The unemployment rate is at a 17-year low of 4.1%, not too far from the Fed's forecast of 3.8% by the end of this year.
Minutes of the US central bank's March 20-21 policy meeting published on Wednesday offered an upbeat assessment of the jobs market, noting that "most participants described labour market conditions as strong."
The minutes also highlighted growing labour shortages saying "in some districts, reports from business contacts or evidence from surveys pointed to continuing shortages of workers in segments of the labour market."
The dollar rose against a basket of currencies after President Donald Trump cast doubt over the timing of his threatened strike on Syria in response to a reported poison gas attack. Stocks on Wall Street were trading higher while US Treasury prices fell.
In a second report on Thursday, the Labour Department said March's unchanged reading in import prices was the weakest since last July and followed a 0.3% increase in February.
Import prices increased 3.6% in the 12 months through March, the biggest gain since April 2017, after advancing 3.4 percent in February. Prices for imported petroleum decreased 1.3% in March after falling 0.8 percent in February.
Excluding petroleum, import prices gained 0.1% in March after climbing 0.4 percent in the prior month. These prices have risen strongly this year, reflecting the dollar's depreciation against the currencies of the United States' main trading partners.
Import prices excluding petroleum rose 2.1% in the 12 months through March. The cost of imported food increased 0.6% in March, while prices for imported capital goods gained 0.2%.
There were also increases in prices of imported base metals, which economists attributed to pre-buying ahead of the steel and aluminum tariffs which came into effect in late March.
The price of goods imported from China edged up 0.1% in March, rising for a second straight month. Prices for imports from China increased 0.2% in the 12 months through March.
"The continued firming will likely underpin stronger nonfuel import price inflation going forward," said Gregory Daco, chief US economist at Oxford Economics in New York. "In turn, higher import prices will support rising domestic prices, but with only a moderate pass-through."