More Americans file new claims for jobless benefits

Friday, July 11, 2003

WASHINGTON -- The number of Americans filing claims for jobless benefits climbed to a five-week high last week, a fresh sign that businesses are still of a mind to pare down rather than bulk up.

And big retailers reported only modest gains in June as wet weather and cool temperatures combined to dampen sales.

The latest batch of economic news Thursday depicted an economy that is struggling to get back to full economic speed.

"Basically we're stuck in the vicious cycle. Consumers, worried about their jobs, are restrained in their spending. Businesses, fearful of making bets with demand so low, are restrained in their hiring," said Oscar Gonzalez, economist at John Hancock Financial Services.

For the work week ending July 5, new applications for unemployment insurance rose by a seasonally adjusted 5,000 to 439,000, the highest level since the week ending May 31, the Labor Department said. The increase surprised economists who were expecting claims to go down.

On Wall Street, the news caused stocks to tumble. The Dow Jones industrials lost 120.17 points to close at 9,036.04.

For 21 weeks in a row, claims have remained stubbornly above the 400,000 level associated with a sluggish job market. The more stable four-week moving average of claims, which smooths out weekly fluctuations, edged up by 1,000 to 426,750 last week, representing the highest level since June 21.

The number of out-of-work Americans continuing to draw jobless benefits jumped by 87,000 to 3.8 million for the work week ending June 28, the most recent period for which that information is available. That represented the highest level since Feb. 26, 1983, and suggested that not a lot of hiring is taking place.

On the retail front, Wal-Mart Stores Inc., the world's largest retailer, reported a small sales gain that was a bit below analysts' forecasts.

Department stores and clothiers continued to struggle.

Although consumers didn't shop until they dropped last month, they generally are spending sufficiently to keep the economy going.

Because consumer spending plays a major role in shaping economic activity, analysts are still keeping a close eye on how consumers behave amid the stagnant job climate.

Last week the government reported that the nation's unemployment rate climbed to 6.4 percent in June, a nine-year high.

Businesses, wanting profits to improve and facing lackluster customer demand, have been reluctant to crank up capital spending and hiring, the main factors hampering the economy's full recovery.

Federal Reserve Chairman Alan Greenspan, meanwhile, said in a Capitol Hill appearance Thursday that high natural gas prices and shortages are already having an adverse impact on some industries, but as yet not much direct effect on the overall economy.

Still, Greenspan predicted a loss of jobs in industries heavily dependent on natural gas as U.S. companies lose business to foreign competitors that pay less for energy.

To help the economy, the Fed on June 25 cut a key short-term interest rate by one-quarter percentage point to 1 percent, a 45-year low. The hope is that lower borrowing costs will motivate consumers and businesses to boost spending and investment, which would strengthen economic growth.

Many economists believe the Fed will leave rates at that low level through the rest of the year, unless the economy takes an unexpected turn for the worse. Under that scenario, another rate cut would probably be ordered by the Fed, analysts say.

Greenspan didn't discuss the future course of interest rate policy in his testimony.

With a fresh round of federal tax cuts now beginning to kick in, some economists are still hopeful that the economy will see stronger growth rates in the current quarter and the fourth quarter of this year. Those economists are forecasting economic growth in the second half of this year in the range of a 3.5 percent to 4 percent rate.

The National Retail Federation believes retail sales also will improve in the months ahead. "Though there will be lingering economic problems, retailers can expect solid, steady growth in the second half of the year," said the federation's chief economist, Rosalind Wells.

Economists say that the economy, which grew at a tepid 1.4 percent in the first three months of this year, needs to shift into a higher rate of at least 3 percent for companies to step up hiring.


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