Jobless claims down, but rise expected

WASHINGTON -- The number of people on the jobless rolls is down by a fraction, but those figures could be deceiving: Economists expect the unemployment rate to rise again today, and jobs should be scarce for months to come.

The total number of people on unemployment aid fell slightly for the first time in 20 weeks, down about 15,000 to 6.7 million, the Labor Department said Thursday. It was the first drop in that figure since early January.

First-time jobless claims also dipped to a seasonally adjusted 621,000.

While it may be a sign businesses are starting to hire again, some economists say the lower numbers could simply mean people out of work are using up their benefits.

Productivity is also up among U.S. workers, according to another report out Thursday -- but only because companies are forced to produce more with fewer workers. That means they will probably delay hiring even after the economy begins growing again.

And an influx of new college graduates could push unemployment even higher over the summer because many will fail to find work.

"We don't think the jobless rate is close to peaking yet," economists at Wrightson ICAP said in a note to clients. They did say they expected the increase to be slower.

Analysts forecast the unemployment rate will rise to 9.2 percent when the government releases its May jobs report today. Many economists expect it to top 10 percent by year's end and to keep rising into next year.

Economists expect the report to show employers cut 520,000 jobs last month -- huge by historical measures but far fewer than the average of 700,000 a month for the first quarter of this year.

Pierre Ellis, senior economist at Decision Economics, said the decline in the number of people receiving unemployment aid may mean some businesses are starting to hire. He projects today's employment report will show a smaller loss of just 450,000 jobs.

Other economists say that if fewer people receiving unemployment aid, it could signal some are simply using up their benefits, rather than finding a new job.

"Businesses have shown no proclivity to hire anybody," said Mark Vitner, senior economist at Wachovia.

The number of people claiming jobless aid through an extended benefits program rose by about 160,000 to 2.35 million for the week that ended May 16, the Labor Department said.

That figure, which lags behind the figures for initial claims by two weeks, brings the total number of people claiming benefits to more than 9 million.

The emergency extension program, approved by Congress last June, adds up to 33 extra weeks of benefits on top of the regular 26 weeks provided by most states.

Sales fell in May at many stores as shoppers spent cautiously, focusing on bargains and food. Discounter Target Corp., warehouse club operator Costco Wholesale Corp. and Macy's Inc. department store reported drops in sales.

TJX Cos., which owns the TJ Maxx and Marshalls chains, said sales rose a greater-than-expected 5 percent. Wal-Mart, the world's largest retailer, did not report monthly sales but said it expects to hire about 22,000 people for new positions this year.

Economists say the troubles in the auto industry, with both Chrysler and General Motors entering bankruptcy protection and announcing huge cuts, could cause more turmoil in the jobless claims data over the next several weeks.

The Labor Department said productivity rose at a seasonally adjusted annual rate of 1.6 percent in the January-March period. That was double the government's previous estimate last month. And it was better than the 0.6 drop in last year's fourth quarter.

In more normal times, higher productivity can lead to higher standards of living because workers who produce more can earn more money without forcing companies to raise prices.

In this case, though, the productivity gain came with a steep drop in worker output. The reason was that companies laid off employees and cut their remaining workers' hours at an even faster pace.

On a positive note, economists said the rise in productivity indicates companies have succeeded in getting labor costs in line with lesser production. That reduces the need for future layoffs, Vitner said in a note to clients.

Labor costs rose 3 percent, down from the government's previous measure of 3.3 percent. A rapid increase in labor costs could fuel inflation. But most economists aren't worried about rising prices because the recession is keeping a lid on wages.