As jobless claims fall, layoffs could slow further

WASHINGTON -- In a positive sign for the economy, companies are laying off fewer workers as they prepare to ramp up production to replenish their depleted stockpiles of goods.

Many analysts pointed to Thursday's drop in jobless claims as evidence of a trend signaling fewer job losses in coming months, particularly compared with the flood of layoffs earlier this year.

Still, job openings remain scarce. And most economists expect the unemployment rate to keep rising to 10 percent or higher by the end of this year. Today, the government will report the July unemployment rate.

First-time claims for jobless benefits dropped to a seasonally adjusted 550,000 last week, down from 588,000 in the previous week, the Labor Department said Thursday. The four-week average of claims, which smooths out fluctuations, dropped to 555,250, its lowest point since late January.

"The lower claims figures are an important economic development and confirmation that the economy is turning the corner," Joseph LaVorgna, chief U.S. economist at Deutsche Bank, wrote in a note to clients.

Fewer layoffs could help boost consumer sentiment. That's because those who are spending less now for fear of losing their jobs could grow more confident. If they start borrowing and spending more, it would help invigorate the economy.

Many economists say an improved job market could be evident in the unemployment report to be issued Friday. LaVorgna, for example, has cut his projection of job losses for July to 150,000 from 325,000. That would be the fewest since last July.

Overall, analysts expect the report will show the unemployment rate rose to a 26-year high of 9.6 percent last month, up from 9.5 percent in June, according to survey by Thomson Reuters. Employers are forecast to have cut 320,000 jobs in July, the survey found, down from 467,000 in June and from an average of 645,000 in the six months from November to April.

But many economists think the July job losses will be smaller. Dean Maki, chief U.S. economist at Barclays Capital, expects Friday's report to show a 275,000 drop in payrolls.

Analysts generally expect production to ramp up in the July-September period as manufacturers restock shelves and warehouses.

Layoffs in the construction industry should also decline, Maki said, because home building has recovered from record lows. Spending on residential construction rose in June for the first time in more than three years, the Commerce Department said Monday.

"We think the trend is toward smaller and smaller job cuts" until the last three months of the year, Maki said, when employers may actually add jobs -- which hasn't happened since December 2007.

Many companies have cut as many workers as they possibly can while still maintaining an adequate output of goods, said Rob Saam, senior vice president of Lee Hecht Harrison, a consulting firm that helps find jobs for laid-off professionals. In many cases, these companies have managed to boost the productivity of their diminished staff.

"You can only maintain that level of productivity for so long before you wear out your work force," Saam said.

Other figures out Thursday indicated that jobs are still scarce. The number of people who are continuing to claim unemployment benefits rose by 69,000 to 6.3 million, after having dropped for three straight weeks -- evidence that the unemployed are having difficulty finding new work.

The figures for continuing jobless claims lag behind those for initial claims by a week.

When emergency extensions of unemployment are included, the total jobless benefit rolls climbed to a record 9.35 million for the week ending July 18, the most recent period for which figures are available. Congress has added up to 53 extra weeks of benefits on top of the 26 typically provided by the states.

Despite the decline in new jobless claims, they remain far above the 300,000 to 350,000 that analysts say is consistent with a healthy economy. New claims last fell below 300,000 in early 2007.

Separately, many retail chains reported sluggish July sales Thursday as consumers proved reluctant to spend. Mall-based chains, such as Macy's Inc. and teen retailers Abercrombie & Fitch, were the hardest hit as shoppers focused on necessities.

Financial markets fell in afternoon trading. The Dow Jones industrial average dropped 24 points, or 0.27 percent, while broader stock averages also declined.

The recession, which began in December 2007 and is the longest since World War II, has eliminated a net total of 6.5 million jobs.

More job cuts were announced this week. The publisher of the Milwaukee Journal Sentinel said it would slash 92 jobs as the current advertising slump continues to ravage the newspaper business. Elsewhere, about 6,000 General Motors Co. blue-collar workers have taken the latest round of early retirement and buyout offers. But GM wants to cut about 13,500 workers, setting the stage for more layoffs.