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Jobless claims remain high while manufacturing sags
WASHINGTON -- New claims for jobless benefits clocked in at the second-highest level of the year and manufacturing shrank, fresh signs that the postwar economy is still struggling.
The stagnant job market and the battered manufacturing sector are sore spots for the fragile recovery.
"They are casting a big pall upon the economy," said Richard Yamarone, economist with Argus Research Corp.
Although new claims for unemployment insurance dropped by a seasonally adjusted 13,000 for the work week ending April 26, the level of claims -- 448,000 -- was still the second-highest this year, the Labor Department reported Thursday.
For 11 straight weeks, jobless claims have been above the 400,000 mark, a level indicative of a weak labor climate.
"Businesses have not yet regained enough confidence or motivation to slow layoffs and resume hiring," said Maury Harris, chief economist at UBS Warburg.
Manufacturing, meanwhile, not only failed to pick up in April, but fell for the second straight month.
The Institute for Supply Management's manufacturing index fell to 45.4 last month, slipping from 46.2 in March. A reading below 50 means manufacturing activity is contracting; above 50 indicates industry is more busy or growing.
"The manufacturing sector remains a basket case, and it will be interesting to see how long it takes before we see a turnaround here," said Joel Naroff, president of Naroff Economic Advisors.
On Wall Street, the Dow Jones industrial average closed down 25.84 points at 8,454.25.
Other economic news Thursday also was a bit discouraging.
Construction spending declined by 1 percent in March, the largest drop in seven months, the Commerce Department reported.
Much of the weakness came from a decrease in spending on big government projects, such as highways and schools. Spending on commercial ventures, such as office buildings, by private builders also was lackluster.
And, U.S. productivity rose at an annual rate of 1.6 percent in the first three months of 2003 as companies produced more while they kept work forces lean. That showing was less than analysts expected but was improved from the prior quarter's 0.7 percent growth rate.
Workers lost ground in wages in the first quarter. Hourly compensation adjusted for inflation fell at a rate of 0.3 percent, compared with a 1.9 percent growth rate in the fourth quarter of 2002.
In the layoffs report, the more stable, four-week moving average of jobless claims, which smooths out weekly fluctuations, went up last week by 1,250 to 442,000. That marked the highest level in just over a year.
"The persistent high level of new claims for unemployment insurance suggests that firms may still be finding it possible to meet their customers' tepid increases in demand with a leaner work force," Federal Reserve Chairman Alan Greenspan said Wednesday, when he gave House lawmakers an updated picture of the recovery.
Greenspan said the economy gradually should grow stronger with the end of the Iraq war. Many private economists are hopeful a material rebound in economic activity will develop in the second half of this year.
Even if that happens, the nation's unemployment rate probably would creep up because job growth wouldn't be strong enough to accommodate all the additional job seekers who would enter the market, attracted by an improved climate.
Economists are predicting the jobless rate will nudge up to 5.9 percent or 6 percent in April, from March's rate of 5.8 percent. They also are expecting the economy to lose around 58,000 jobs in April. While job loss isn't something economists want to see, that would be an improvement over the 108,000 jobs cut in March.
The number of workers continuing to draw jobless benefits soared by 110,000 to 3.68 million for the work week ending April 19, the most recent period for which the information is available. That marked the highest level in nearly a year and suggested that not much hiring is taking place.
Given the muddled economic environment, analysts believe the Fed will continue to hold the federal funds rate at 1.25 percent, a 41-year low, when it meets next week.
"I'll step out on a limb and say April was the bottom," said a hopeful Ken Mayland, president of ClearView Economics. "April will be viewed as a transition month to better times."