|In this July 20, 2010 photo, a dejected Orlando Payton looks for a job on the computer at JobTrain employment office in Menlo Park, Calif. New applications for jobless benefits rise to highest level since February as layoffs continue. (AP Photo/Paul Sakuma)|
Jobs picture dims as unemployment claims rise
WASHINGTON—The economy is looking bleaker as new applications for jobless benefits rose last week to the highest level in almost six months.
It's a sign that hiring remains weak and employers may be going back to cutting their staffs. Analysts say the increase suggests companies won't be adding enough workers in August to lower the 9.5 percent unemployment rate.
First-time claims for jobless benefits edged up by 2,000 to a seasonally adjusted 484,000, the Labor Department said Thursday. That's the highest total since February. Analysts had expected claims to fall.
Initial claims have now risen in three of the last four weeks and are close to their high point for the year of 490,000, reached in late January. The four-week average, which smooths volatility, soared by 14,250 to 473,500, also the highest since late February.
The report "represents a very adverse turn in the labor market, threatening income growth and consumer spending," Pierre Ellis, an economist at Decision Economics, wrote in a note to clients.
Even the lowest mortgage rates in decades are a gloomy sign for the economy. Average rates on 30-year fixed mortgages fell to 4.44 percent, Freddie Mac said Thursday. While that's good for people looking to refinance or buy a home, low rates haven't been enough to energize a struggling housing market.
And the drop suggests investors are losing confidence in the recovery. Mortgage rates track the yields on U.S. Treasurys. They are falling because investors are shifting more money away from stocks and into the safety of Treasurys, which forces those yields down.
Those yields were pushed even lower this week after the Federal Reserve downgraded its assessment of the economy on Tuesday and announced a program to buy more Treasurys to help lift the recovery.
The stock market has been falling since the Fed's more pessimistic outlook. The Dow Jones industrial average dropped 58 points on Thursday and is down more than 300 points for the week.
Economists closely watch weekly claims, which are considered a gauge of the pace of layoffs and an indication of employers' willingness to hire.
The government's July jobs report, released Friday, showed that the economy lost a net total of 131,000 jobs last month. Excluding the impact of the elimination of 143,000 temporary census jobs, the economy added a meager 12,000 positions, as layoffs by state and local governments almost canceled out weak hiring by businesses.
Thursday's report on jobless claims indicates that trend may not change soon. Claims fell steadily last year from their peak of 651,000, reached in March 2009. But they have mostly leveled out this year at or above 450,000. In a healthy economy with rapid hiring, claims usually drop below 400,000.
The rise in claims is a sign that private employers may be ramping up layoffs, which declined as recently as June, according to a separate government report released Wednesday.
States with the largest increases in claims two weeks ago cited rising layoffs in the construction and manufacturing industries. The state data lags the national report by one week.
Claims could also be rising because of large job cuts by state and local governments, which are struggling with unprecedented budget gaps. State and local governments cut 48,000 jobs in July, the most in a year.
Some economists speculate that many census workers whose jobs are finished are requesting unemployment benefits.
Another possibility is that small companies, facing tight credit, are still reducing their staffs, even as larger corporations slowly resume hiring.
The report comes after the Federal Reserve said Tuesday that "employers remain reluctant to add to payrolls." The central bank said the pace of economic recovery is likely to be more modest than anticipated.
And on Wednesday, the Commerce Department said June imports jumped while exports dropped. That pushed the trade gap to its widest point since October 2008. Many economists say that could reduce economic growth estimates in the April-to-June quarter to 1.2 percent -- half the 2.4 percent annual rate the government estimated last month.
That's a sharp slowdown from the 5 percent growth in the final quarter of 2009 and the 3.7 percent pace in the January-to-March quarter. That weakening could be prompting more employers to cut staff, or at least hold off on hiring.
The total number of people receiving benefits dropped 118,000 to 4.45 million, the department said. But that doesn't include another 5.3 million people receiving extended benefits paid for by the federal government, as of the week ending July 24, the latest data available.
Some companies are still cutting workers. Medical products manufacturer CareFusion Corp. said Wednesday it plans to eliminate 700 jobs, saving the company up to $120 million a year.