Two closely followed indices of economic activity fell sharply recently, fueling concerns that second quarter growth will be sluggish at best.

Reuters:

The U.S. economy showed worrisome signs as jobless claims rose sharply last week while ground-breaking at home construction sites tumbled in April and a gauge of underlying inflation pointed to weak demand.

Housing has been boosted by interest rates kept low by the Fed, and a third report showed that inflation is not adding any pressure to central bankers to taper back bond buying programs.

The data could fuel fears over the impact of a government austerity drive that began in January, and could raise pressure on the Federal Reserve to keep its money printing press running on overdrive as the central bank buys bonds to support the economy.

The number of Americans filing new claims for unemployment benefits climbed last week at the fastest pace in six months, the Labor Department said on Thursday. Initial claims for state unemployment benefits jumped by 32,000 to 360,000. That was the biggest jump since November and confounded analysts' expectations for a more modest increase.

"I think there's plenty of slack in the labor market.," said Tanweer Akram, an economist with ING U.S. Investment Management in Atlanta.

Futures indexes for U.S. stocks turned lower following the data's publication, as did yields on U.S. government debt. The dollar weakened against the euro and the yen.

A Labor Department analyst said no states had estimated their data, and that there were no signs furloughs for government employees played a significant role in last week's increase in claims.

[...]

Housing has also been an economic bright spot, but a separate report showed ground-breaking for new U.S. homes plummeted more than expected in April.

The Commerce Department said starts at building sites for homes fell 16.5 percent last month to a 853,000-unit annual rate. Still, permits to build new homes increased, a reassuring reminder that the housing sector could still contribute to the economic recovery.

Another worrying sign for economists is the extremely low inflation. In a vibrant economy, low inflation is a boon. But in a struggling economy, low inflation signals a lack of demand and may lead to deflation:

The annual reading for core inflation was at its lowest since June 2011 and could stoke concerns over cooling demand in the U.S. economy, or perhaps even the risk of outright deflation.

Most economists and investors don't think deflation is very likely for America in the coming years, but it would be a central banker's nightmare. Deflation involves spiraling declines in prices and wages and is difficult for policymakers to combat.

"Further falls in U.S. core inflation in the coming months may make some Fed officials concerned about very low inflation, or even deflation," said Paul Dales, an economist with Capital Economics in London.

Bottom line: the economy is better than it was (in most of the country) but not as good as it has to be. This has been the story for three years of Obama's failing economic policies and won't change anytime soon.