By Lucia Mutikani
WASHINGTON (Reuters) - The number of Americans filing for jobless aid hit a two-month high last week and more applications were received in the prior week than initially reported, suggesting a cooling in the labor market recovery.
Initial claims for state unemployment benefits increased 13,000 last week to a seasonally adjusted 380,000, the Labor Department said on Thursday, defying economists' expectations for a drop to 355,000. The prior week's count was revised to show 10,000 more applications than previously reported.
While economists cautioned against reading too much into the report, saying problems adjusting the data for seasonal fluctuations around Easter may have pushed last week's figure higher, they said it nonetheless provided a troubling signal.
"It certainly bolsters the view that things are starting too slow down," said Tim Quinlan, an economist at Wells Fargo Securities in Charlotte, North Carolina.
The data comes in the wake of a report on Friday that showed the economy created only 120,000 new jobs last month, the fewest since October.
Economists noted that claims tend to be volatile at this time of year due to shifts in the timing of Easter and school spring breaks, which make it difficult for the Labor Department to adjust the data for seasonal variations.
"This is not a game changer, this does not confirm the weakness in the report we saw last Friday. We suspect that much of the increase was due to seasonal issues and we would therefore expect it to drift lower," said Eric Green, chief economist at TD Securities in New York.
Even so, the four-week moving average for new claims, considered a better measure of labor market trends, rose 4,250 to 368,500.
TRADE GAP NARROWS SHARPLY
Stocks opened higher as investors ignored the claims data, focusing instead on declining bond yields in Italy and Spain that eased worries over Europe's debt crisis.
Government debt prices edged down, while the dollar fell against a basket of currencies.
Away from the labor market, there was good news for the economy.
A report from the Commerce Department showed the nation's trade gap shrank 12.4 percent to $46 billion in February as exports hit a record high. It was the biggest month-to-month decline in the trade shortfall since May 2009.
The shrinking of the deficit prompted economists, including those at Goldman Sachs, to lift their estimates for first quarter economic growth. Goldman Sachs now see the GDP expanding at a 2.5 percent annual pace instead of 2.3 percent.
The economy grew at a 3 percent rate in the fourth quarter.
A third report showed little sign of inflation pressures. The Labor Department said prices received by producers were unchanged in March after advancing 0.4 percent in February, while wholesale prices excluding volatile food and energy costs rose 0.3 percent.
That should allow the Federal Reserve to keep interest rates ultra low and even embark on a third round asset purchases or quantitative easing should job growth completely stall.
New York Federal Reserve Bank President William Dudley said on Thursday the central bank was gathering more data to determine whether last month's weak employment report was just a weather-related setback or a sign the recovery is losing momentum again.
"The somewhat softer March labor market report that was released last Friday may reflect the earlier positive influence of the mild weather on job creation in January and February, although other less sanguine interpretations are also plausible," he said.
Last month, over one-third of the rise in core Producer Price Index was attributed to rising costs for light motor trucks. Higher prices for passenger cars, soaps and detergents also contributed to the advance.
In the 12 months through March, wholesale prices increased 2.8 percent, the smallest increase since June 2010, after advancing 3.3 percent in February.
"Price pressures have eased but are not gone because of recession in Europe and slowing output growth in China," said Michael Montgomery, an economist at IHS Global Insight in Lexington, Massachusetts.
(Editing by Neil Stempleman)