New jobless claims rise unexpectedly to 567 thousand

WASHINGTON -- The number of first-time claims for unemployment benefits rose unexpectedly for the second straight week, a sign that jobs remain scarce even as other data show the U.S. economy is stabilizing.

Many economists expect the economy to grow at a modest pace in the second half of this year, bringing an end to the longest recession since World War II. But jobs are likely to remain scarce and many analysts worry that persistently high unemployment could cause consumers to hold back on spending, threatening a recovery.

The Labor Department said Thursday the number of new jobless claims rose to a seasonally adjusted 576,000 last week, from a revised figure of 561,000. Wall Street economists expected a drop to 550,000, according to a survey by Thomson Reuters.

Economists closely watch initial claims, which are considered a gauge of layoffs and an indication of companies' willingness to hire new workers.

"Consumer spending is going to have a very difficult time recovering with the labor market as weak as it is," said Joshua Shapiro, chief U.S. economist at MFR Inc.

The Conference Board's index of leading economic indicators rose for a fourth straight month in July, gaining 0.6 percent. That was slightly less than economists expected and a slower rate than in the prior three months.

Still, the Conference Board said its index, which is meant to project economic activity in the next three to six months, suggests the recession has bottomed out and growth in economic activity will begin soon. Six of the 10 indicators that comprise the index increased in July, including employment data and stock prices. Consumer expectations were the biggest negative factor.

Meanwhile, the Mortgage Bankers Association said more than 13 percent of American homeowners with a mortgage are either behind on their payments or in foreclosure, a record tally as the recession leaves more people unemployed. About a third of new foreclosures between April and June were prime, fixed-rate loans, up from one in five a year earlier.

The jobless claims figures are volatile, and had been trending down, after remaining above 600,000 for most of this year. The new report indicates that the labor market is still weak. In a healthy economy, initial claims are usually around 325,000 or below.

The four-week average of initial claims, which smooths out fluctuations, rose for the second straight week to 570,000.

The number of people remaining on the benefit rolls dropped by 2,000 to 6.24 million. Analysts had expected a slight decline. The continuing claims figures lag initial claims by a week.

The stock market rose slightly in morning trading. The Dow Jones industrial average added about 35 points, while broader indices also edged up.

When federal emergency programs are included, the total number of jobless benefit recipients was 9.18 million in the week that ended Aug. 1, the most recent data available. That was down from 9.25 million in the previous week. Congress has added up to 53 extra weeks of benefits on top of the 26 typically provided by the states.

The large number of people remaining on the rolls is an indication that unemployed workers are having a hard time finding new jobs.

Still, layoffs have slowed recently. The department said earlier this month that companies cut 247,000 jobs in July, a large amount but still the smallest number in almost a year.

The unemployment rate dipped to 9.4 percent in July from 9.5 percent, its first drop in 15 months. But many private economists and the Federal Reserve think the rates could top 10 percent by next year.

The recession, which began in December 2007 and is the longest since World War II, has eliminated a net total of 6.7 million jobs.

More job cuts were announced this week. Bethesda, Md.-based defense contractor Lockheed Martin Corp. said it will eliminate about 800 jobs in its space systems division, and San Francisco-based video and audio conferencing company Polycom Inc. said it will cut 3 percent of its 2,600 person work force.

Among the states, Tennessee had the largest increase in claims with 2,525 for the week ended Aug. 8, which it attributed to more layoffs in the transportation equipment, industrial machinery, and rubber and plastics industries. The next largest increases were in North Carolina, Wisconsin, Georgia and Washington.

California reported the largest drop in claims of 5,635, which it attributed to fewer layoffs in the construction, trade and service industries. Michigan, Ohio, Kentucky and Delaware had the next largest decreases.

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AP Business Writers Alan Zibel in Washington and Tali Arbel in New York contributed to this report.