Economy facing headwinds, but Bernanke hopeful

By Pedro Nicolaci da Costa

WASHINGTON | Thu Jan 13, 2011 5:16pm EST

WASHINGTON (Reuters) - Jobless claims hit a 10-week high last week while producer prices shot up in December, pointing to headwinds for an economy that Federal Reserve Chairman Ben Bernanke said was showing fresh vigor.

However, a surge in exports to their highest level in two years, which included record sales to China, helped narrow the U.S. trade deficit in November, an encouraging sign for fourth-quarter economic growth.

The data on Thursday marked one step forward and two steps back for an economy that appeared to gain a bit more momentum toward the end of last year.

Bernanke said he was hopeful about the recent improvement in the outlook, saying he expects the economy to expand between 3 percent and 4 percent this year.

"That's not going to reduce unemployment at the pace we'd like it to, but certainly it would be good to see the economy growing," Bernanke said at a conference on small business sponsored by the Federal Deposit Insurance Corporation.

In November, the Fed's estimates for 2011 were in a range of 3 percent to 3.6 percent.

"I think deflation risk has receded considerably and so we're moving in the right direction," Bernanke said.

Still, Thursday's data showed just how torturous the economy's path to recovery would be.

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 figures weighed on U.S. stocks and boosted government bonds, which were also benefiting from concerns about Europe's debt struggles.

"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, 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.

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http://www.reuters.com/article/idUSTRE70A41H20110113