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Rising U.S. jobless claims reflect uneven recovery

Friday, February 26, 2010

(Photo)
Chicago-area residents wait in line to enter a job fair Thursday in Chicago. New claims for unemployment benefits jumped unexpectedly in the U.S. last week, mostly because state agencies processed a backlog of claims caused by snowstorms the previous week.
(CHARLES REX ARBOGAST ~ Associated Press)
WASHINGTON -- Layoffs are no longer dropping as they were in the final months of last year, reinforcing fears that the jobs crisis will weigh down consumer spending and the economic rebound.

Severe weather contributed to a rise in jobless claims last week. But other economic data add to evidence that the recovery remains weak and uneven.

An example is orders for big-ticket manufactured goods, excluding airplanes and other transportation equipment. Those orders dropped 0.6 percent in January, the government said Thursday.

Earlier in the week, new-home sales fell in January to their lowest pace on record. And consumer confidence plunged in February.

Mark Vitner, senior economist at Wells Fargo, said the weak reports point to an economy struggling to wean itself from government stimulus programs such as homebuyer tax credits and other supports.

"Going forward, growth is going to be much more dependent on the private sector," Vitner said. "And consumer demand hasn't picked up that much yet."

The economy's growth rate will likely slow from above 3 percent in the current quarter, Wells Fargo estimates, to less than 2 percent by the middle of the year.

In its report Thursday on jobless claims, the Labor Department said first-time claims for unemployment benefits rose 22,000 to a seasonally adjusted 496,000. Wall Street analysts polled by Thomson Reuters had expected a drop to 455,000.

Backlog processed

The rise occurred mostly because state agencies last week processed a backlog of claims caused by snowstorms the previous week. The storms also increased temporary layoffs in the weather-sensitive construction and transportation industries.

Still, the four-week average of jobless claims, which smooths out volatility, rose 6,000 to 473,750. The average had fallen sharply over the summer and fall from its peak last spring of about 650,000.

This year, the improvement has stalled. The four-week average has risen about 30,000 in the past month. It's now well above the 425,000 level that many economists say would signal net hiring.

Economists closely watch initial claims as a gauge of the pace of layoffs and a sign of companies' willingness to hire. More layoffs means consumers will have less money to spend, hindering the economic recovery.

"The fact that these snowstorms -- as bad as they were -- could have such an impact is more testimony to the fragility of the recovery," Diane Swonk, chief economist at Mesirow Financial, wrote in a note to clients. "The recovery is still on thin ice and lost momentum in the first quarter."

The jobless claims report, along with economic anxiety in Europe, contributed to unease on Wall Street. In late-afternoon trading, the Dow Jones industrial average fell about 86 points, or about 0.8 percent. Broader stock averages also dropped.

Europe's debt crisis is adding to pressure on the U.S. economic recovery, given how closely the economies feed on each other. The European Union is pushing debt-laden countries such as Greece, Ireland and Portugal to balance their books. But that's heightening fears that such austerity measures could tip the continent back into recession.

In the United States, the Senate on Wednesday sought to counter persistent joblessness by passing a $35 billion jobs bill. The bill would provide more funding for transportation projects and tax cuts for companies that hire.

The higher claims figures in recent weeks means the unemployment rate likely rose in February and more jobs were lost. The unemployment rate in January was 9.7 percent, and employers cut a net total of 20,000 jobs. The Labor Department will issue the February employment report next week.

Many analysts expect this month's snowstorms cost up to 100,000 jobs and will artificially inflate the unemployment rate. A clear reading of the job picture may not be available until March or April.

Also Thursday, Federal Reserve Chairman Ben Bernanke told a congressional committee that the snowstorms are likely to have a short-term -- but not permanent -- effect on unemployment and layoffs. He said policymakers will "have to be careful about not overinterpreting" the upcoming jobs data.

The Fed said last week that it expects the rate will average between 9.5 percent and 9.7 percent this year.

The Commerce Department's report Thursday on durable factory goods was mixed. Orders shot up in January by 3 percent, the most in six months. The gain resulted from a surge in orders for aircraft. Excluding transportation, durable goods orders fell by 0.6 percent.

But economists weren't overly alarmed by that drop. They noted that the figures are volatile month-to-month. And they pointed out that the government raised its estimate for orders, excluding transportation, in December to show a 2 percent gain.

The economy has grown for six months but is not yet spurring new hiring. Many economists point out that the recovery is weak compared with the aftermath of previous deep recessions. Employers have shed 8.4 million jobs since the recession began.

The gross domestic product, the broadest gauge of the economy's output, grew at an annual rate of 5.7 percent in last year's October-December quarter. That figure is expected to decline in the current quarter.

The government will release a revised estimate of fourth-quarter GDP on Friday. Economists expect the number to be unchanged at around 5.7 percent.


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