The Federal Reserve's preferred measure of inflation, the personal consumption expenditures (PCE) core deflator, advanced by 0.169% in March, contributing to a year-over-year change of 2.070%, according to a report from the Commerce Department. Markets had been expecting a monthly gain of just 0.1% in core PCE. Annual core PCE was also projected to rise only 2.0%. The annual change in prices is now slightly above the Fed's comfort level of 1.6% to 1.9%.

A key national survey of manufacturing activity in the U.S., the ISM manufacturing index, slowed down at the same pace as last month, coming in at 48.6 in April to confirm a series of mixed but generally downbeat regional surveys. This is the third consecutive month the report has been below the 50 level. Figures above this level are an indication of growth. In the previous report, the headline ticked up three-tenths to 48.6.

"Manufacturers are in a situation where both new orders and production are slowly declining, but prices continue to rise at highly inflationary rates," said Norbert J. Ore, chairman of the ISM Survey Committee.

Initial U.S. jobless claims were back on the rise for the week ending April 26, with claims at 380k, higher than the 365k expected by economists. The previous week's figure was revised up to 345k from 342k. The four-week moving average moved down for the second consecutive week to 363.8k from 370k. Continuing claims for the week ending April 19 also bumped up, rising to 3019k from an upwardly revised prior of 2945k (previously reported as 2934k). Economists had expected a reading of 2950k.

"This morning's report adds further support to our claim that the U.S. employment situation is going to get a lot worse before it gets better, and that the unemployment rate is likely going to rise a lot further over the next few quarters," noted Jacqui Douglas, economic strategist at TD Securities.

Planned job cuts in the U.S. rose 36,436 in April to 90,015, according to a report from Challenger, who said annual job cuts rose 27.4% year-over-year. In March, job cuts had fallen 18,512 to 53,579, translating into a 9.4% increase from 12 months prior.

According to a report from the U.S. Commerce Department, construction spending in the United Sates declined 1.1% month-over-month in March, higher than the projected 0.7% decline and following February's upwardly revised 0.4% increase. Residential construction fell 4.6% compared to February's 1.0% increase while non-residential construction gained 1.3% after rising 0.5% in the previous month.

Underground natural gas storage in the United States increased 86 billion cubic feet in the week ending April 25, the Energy Information Administration reported. It's the third consecutive increase as inventories are re-built following the winter heating season. The weekly increase was greater than the +70 Bcf consensus estimate of analysts and the 24 Bcf build reported last week.

In a letter to U.S. Senator Chris Dodd, Fed Chairman Ben Bernanke said it is impossible to tell when markets will normalize and that the Fed is constantly reviewing its monetary policy tools to make them more effective.

Speaking in Chicago on Thursday, U.S. Assistant Secretary for Financial Markets Anthony W. Ryan said failures in transactions of treasuries had increased over the last 12 months and called on investors to help prevent such events from occurring. Although the U.S. financial system is sound and the infrastructure resilient when faced with the recent developments in financial markets, he called for a change of behaviour and better management of financial practices.

In Canada, Bank of Canada Governor Mark Carney says there is no sign of stagflation in the Canadian economy. Carney said Canada's economy is the strongest among the world's major industrialized countries and that continuing monetary stimulus will bring it back into balance within the next two years. The inflation picture in Canada is unique, Carney said, because the high value of the dollar has held down prices for food and automobiles while other savings are working their way through the system.

The Bank of Canada conducted another C$2.0 billion 28-day purchase and resale agreement (PRA) in an effort to support the efficient functioning of financial markets, drawing an average yield of 3.02%. The high yield was 3.120% while the low yield was 2.98%.

In overnight news, the Bank of England's Financial Stability Report said losses from the credit crunch could total up to less than half the $170 billion estimated by markets. Monetary Policy Committee Member Sir John Gieve said that the market correction was proving to be "protracted and difficult".

Speaking in an interview with the Scotsman, David Blanchflower, a reputed dovish member of the Bank of England's Monetary Policy Committee, denied being pessimistic on the UK's economic outlook, adding that he was "absolutely hawkish" on inflation. Blanchflower went on to explain his view that there was too much emphasis on the short-and-medium-term risks to inflation and not enough focus on the downside risks to the economy.

Australian building approvals fell 5.7% month-over-month in March despite calls for a 1.0% decline, and February's 0.1% gain was revised down to a loss of 0.8%. Approvals declined 0.7% on an annual basis, but February's annual 1.6% loss was revised up to a gain of 0.6%.

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