Jobless claims dip; labor market still weak

WASHINGTON -- Fewer people signed up for unemployment benefits last week, but the dip was not enough to overcome continuing weakness in the country's labor market.

The Labor Department reported Thursday that new applications filed for unemployment insurance fell by a seasonally adjusted 58,000 to 346,000 for the week ending July 5. A year ago, the figure was lower, at 304,000, showing a deterioration in employment conditions.

A government analyst cautioned that last week's drop did not suggest a sudden improvement in the country's overall economic health. The decline was exaggerated because of adjustment problems related to temporary shutdowns at auto plants for retooling new assembly lines. The unadjusted, or actual raw figures, showed an increase of 30,000 claims for last week.

Employers have been chafing under high energy prices and fallout from the housing and credit crises. As they try to cope with those problems and squeezed profits, they have cut back on hiring and other types of investments.

Economists were forecasting claims to dip to 395,000 last week, from a spike of 404,000 in the previous week.

"The underlying trend in claims is upwards, and today's number is noise, nothing more," said Ian Shepherdson, chief economist at High Frequency Economics.

Nonetheless, Wall Street managed to end the day higher. The Dow Jones industrial average gained 81.58 to close at 11,229.02.

The number of people continuing to draw unemployment benefits jumped by 91,000 to 3.2 million for the week ending June 28, the most recent period for which that information is available. That increase left such filings at the highest level since late December 2003. A year ago, the figure stood at 2.5 million.

Cautious employers have cut jobs for six months straight, bringing total losses to 438,000 so far this year, the government reported last week. The economy needs to generate more than 100,000 new jobs a month for employment to remain stable.

The jobless rate in June held steady at 5.5 percent after jumping in May by the most in two decades. However, the unemployment rate is expected to climb to 6 percent or higher by early next year.

Another report Thursday showed shoppers were in the buying mood -- armed with extra cash from the government's rebate checks and enticed by heavy discounts.

The nation's retailers on Thursday reported a better-than-expected June gain of 4.3 percent.

Economic growth in the April-to-June quarter appears to be shaping up better than most people had thought earlier this year, thanks to the tax rebates. However, some analysts worry the economy could be in for another rough patch later this year as the stimulus fades.

Consumer spending is a major driver of overall economic activity and thus is closely watched by economists.

Federal Reserve Chairman Ben Bernanke, appearing on Capitol Hill Thursday, said the government's $168 billion stimulus package, is helping. But he suggested Congress shouldn't rush ahead with another package, as championed by Democrats. "My inclination would be wait and see a bit longer" to get a better sense of whether the economy can strengthen on its own, he said.

The Fed recently ended a nearly year-long campaign of rate reductions to shore up the economy. It did so out of fears that high energy and food prices could spread inflation through the economy.

Bernanke and his colleagues are in a difficult spot. Additional rate cuts would worsen inflation. But boosting rates too soon would hurt the fragile economy.