U.S Jobless claims rise, highlights economy's ills

CIOL Bureau
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WASHINGTON, US: The number of U.S. workers filing new claims for jobless benefits unexpectedly rose last week to the highest level in close to six months, the latest evidence the economy's recovery is faltering.


Thursday's data came two days after the Federal Reserve spooked investors by downgrading its assessment of the economy. The increase in jobless claims added to worries in the stock market, which has failed to make any gains this year.

The number of new claims for state unemployment insurance rose by 2,000 to 484,000 in the week ended August 7, the second straight increase, the Labor Department said. Economists had expected claims to edge down to 469,000.

"This is not a good number," said John Brady, an analyst at MF Global in Chicago. "Claims are going the wrong way. That has the market concerned."


U.S. stocks closed down for a third straight day, pressured by the data and a disappointing revenue forecast from tech bellwether Cisco Systems Inc.

"We are seeing a large number of mixed signals in both the market and from our customers' expectations," Cisco CEO John Chambers told analysts on Wednesday. "We think the words 'unusual uncertainty' are an accurate description of what is occurring," he added, echoing Fed Chairman Ben Bernanke's recent comments on the economy.

While prices for U.S. government debt eased as investors locked in recent gains, the dollar rose broadly on Thursday as traders worried about the global outlook sought a safe haven.


The Fed said on Tuesday that the economy's recovery was likely to be more modest than expected and said it would take steps to ensure its support for the economy does not dwindle.

The central bank's downbeat view, signs that growth in China is slowing and trade and inventory data that suggested U.S. growth was weaker in the second quarter than had been thought combined on Wednesday to erase the year's gains in U.S. stocks.

Casting a further cloud over the global outlook, the euro zone's statistical agency said on Thursday that industrial production in the 12-nation currency bloc declined in June, a suggestion that growth could have softened as a generally vigorous second quarter ended.


U.S. Pessimism Rising

Data for the United States has been decidedly weak over the past couple of months, with private-sector job growth lagging expectations and the unemployment rate stuck at 9.5 percent. That has fed concerns the economy could be at risk of a renewed recession or face a debilitating bout of deflation as the bleak jobs market pressures incomes and prices.

"Whatever recovery we have seen is an outgrowth of inventory restocking and government largess and neither one is sustainable," said Bob Andres, chief investment strategist at Merion Wealth Partners in Berwyn, Pennsylvania.


An NBC News/Wall Street Journal poll released on Wednesday showed economic pessimism was rising, a bad sign for incumbent lawmakers facing voters in November. Majority Democrats are at risk of losing control of the House of Representatives and possibly even the Senate.

The poll found that almost two-thirds of Americans believe the U.S. economy will worsen before it gets better, up from 53 percent who felt that way in January. Nearly six in 10 of those surveyed said the country is headed in the wrong direction.

The government said last month that the economy advanced at a 2.4 percent annualized pace in the April-June quarter, far more slowly than the first quarter's 3.7 percent rate.


A wider-than-expected trade gap and signs businesses were stockpiling fewer inventories than thought have led analysts to warn the economy may have grown in the second quarter at less than half the pace the government estimated on July 30.

Import Prices Suggest Little Inflation

The Labor Department said in a separate release that a rise in oil prices pushed the cost of imported goods higher in July for the first time in three months, though at half the pace economists had expected.


Import prices rose 0.2 percent last month after falling 1.3 percent in June and a revised 0.8 percent in May. That left the three-month cumulative total down 2.0 percent, the largest decline since the three months ended February 2009.

Oil import prices rose 2 percent last month after falling for two months. In recent days, oil prices have been declining.

Prices excluding oil fell 0.2 percent in July, signaling a lack of underlying inflation pressure from imports.

In its report on jobless claims, the department said a four-week moving average of new filings, which economists prefer because it smoothes out weekly fluctuations, rose 14,250 to 473,500. Like the initial claims figure, that was the highest level since the week ended February 20.

The number of people still collecting unemployment benefits after an initial week of aid fell 118,000 to 4.45 million in the week ended July 31, the lowest level since late June. Economists had expected 4.53 million.

The weak jobs market and rising foreclosures will curb demand for housing and keep home prices mostly flat through 2011, a Reuters poll of economists showed.

Still, most of the economists said the battered sector would avoid another major downturn.