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Producer price index unchanged in February

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Producer inflation increases 3.2% year-on-year

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Weekly jobless claims fall 2,000 to 220,000

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Continuing claims decline 27,000 to 1.870 million

By Lucia Mutikani

WASHINGTON, March 13 (Reuters) - U.S. producer prices

were unchanged in February for the first time in seven months,

while fewer Americans filed claims for unemployment benefits

last week, pointing to a stable economy that should allow the

Federal Reserve to keep interest rates steady next week.

But the calm painted by the reports from the Labor

Department on Thursday could be upended by radical government

spending cuts, which have pushed thousands of federal employees

out of work, and an escalating trade war stemming from broad

import tariffs.

The aggressive policies being pursued by President Donald

Trump's administration have sent business and consumer

confidence plummeting, and raised the chances of a recession.

U.S. airlines have cut their earnings estimates noting that

corporations and consumers were scaling back spending because of

mounting economic uncertainty.

"No factory inflation and no worrisome job layoffs either,

so there is nothing to slow the economy's advance for now," said

Christopher Rupkey, chief economist at FWDBONDS.

"Nevertheless, the radical, buzz-saw cuts in spending and

personnel down in Washington could eventually spread to the rest

of the private economy in the months to come and it has already

created enough uncertainty for company CEOs to potentially halt

the economy's forward progress starting in the second quarter."

The unchanged reading in the producer price index for final

demand last month, the first since July, followed an upwardly

revised 0.6% increase in January, the Labor Department's Bureau

of Labor Statistics said.

Economists polled by Reuters had forecast the PPI rising

0.3% after a previously reported 0.4% increase in January.

In the 12 months through February, the PPI climbed 3.2% after

rising 3.7% in January.

But there were unfavorable details in the components that go

into the calculation of the Personal Consumption Expenditures

(PCE) price indexes, which are tracked by the U.S. central bank

for its 2% inflation target. That was similar to the consumer

price data on Wednesday.

Goods prices rose 0.3%, with a 53.6% surge in wholesale egg

prices accounting for two-thirds of the increase. Goods prices

rose 0.6% in January. A raging bird flu outbreak is driving egg

prices higher, boosting the cost of food. Wholesale food prices

shot up 1.7% after increasing 1.0% in January.

Energy prices fell 1.2%. Excluding the volatile food and

energy components, goods prices jumped 0.4% after gaining 0.2%

in the prior month. Further gains are likely amid an escalation

in trade tensions. President Donald Trump has ignited a trade

war, increasing tariffs on goods from China to 20%, with Beijing

retaliating with duties of its own.

Trump imposed a new 25% duty on Canadian and Mexican

imports, before providing a one-month exemption for goods that

meet the rules of origin under the U.S.-Mexico-Canada Agreement

on trade. Enhanced steel and aluminum tariffs drew swift

retaliation from Europe and Canada.

Economists expect the effects of the slew of tariffs by the

Trump administration to show in the months ahead.

SERVICES PRICES FALL

The cost of services fell 0.2% amid a 1.4% decline in

margins for machinery and vehicle wholesaling, after rising 0.6%

in January. There were also decreases in the margins for food

and alcohol, automobiles and automobile parts as well as

apparel, footwear, and accessories retailing.

But prices for hospital inpatient care increased 0.8%.

Portfolio management fees rose 0.5%, while airline fares were

unchanged. Hotel and motel accommodation prices dipped 0.1%.

Portfolio management fees, healthcare, hotel and motel

accommodation and airline fares are among the components that go

into the calculation of the core PCE price index.

With the two reports in hand, economists estimated that the

PCE price index excluding the volatile food and energy

components rose by 0.3% in February, with high odds for a 0.4%

increase. Core PCE inflation gained 0.3% in January.

It was forecast rising 2.7% year-on-year after advancing

2.6% in January. The Fed is expected to keep its benchmark

overnight interest rate in the 4.25%-4.50% range next Wednesday,

having reduced it by 100 basis points since September.

U.S. stocks opened lower. The dollar advanced against a

basket of currencies. U.S. Treasury yields rose.

Financial markets expect the Fed to resume cutting borrowing

costs in June after it paused its easing cycle in January, as

the escalation in trade tensions threatens the economic

expansion. The policy rate was hiked by 5.25 percentage points

in 2022 and 2023 to tame inflation.

A separate report from the Labor Department showed initial

claims for state unemployment benefits slipped 2,000 to a

seasonally adjusted 220,000 for the week ended March 8.

Economists had forecast 225,000 claims for the latest week.

Risks for the labor market are, however, tilted to the

downside. Thousands of federal government workers, mostly on

probation, have been fired by tech billionaire Elon Musk's

Department of Government Efficiency, or DOGE, an entity created

by Trump to drastically shrink the government.

Unions representing some of the civil servants have

challenged the layoffs, resulting in reinstatements. Agencies

have a Thursday deadline to submit plans for large-scale

layoffs. The federal government upheaval has not yet

significantly filtered through to official labor market data.

A separate unemployment compensation for federal employees

(UCFE) program, which is reported with a one-week lag, showed

applications little changed.

"With all the gyrations between DOGE, agency cuts, and the

courts, the number of federal employees already going without a

paycheck is unclear," said Andrew Stettner, a senior fellow at

the Century Foundation. "What we know ... is that the cruel way

in which Trump is cutting government payrolls is making it hard

for laid-off federal employees to get benefits."

Spending cuts have, however, impacted contractors,

accounting for the elevation in Washington D.C. claims.

The number of people receiving benefits after an initial

week of aid, a proxy for hiring, decreased 27,000 to a

seasonally adjusted 1.870 million during the week ending March

1, the claims report showed.