New Jobless Claims Near 9-Year High
Thursday June 7, 12:49 pm Eastern Time
By Joanne Morrison
WASHINGTON (Reuters) - The U.S. labor market continued to weaken into early June, with more Americans applying for jobless benefits for the first time, suggesting the world's richest economy faces a slower and more difficult recovery than many analysts had foreseen.
The number of initial applications for state jobless benefits shot up to its highest level in almost nine years last week, the government said on Thursday.
``I think these numbers show that the probability of a ''V''-shaped recovery is diminishing almost daily,'' said Anthony Chan, Chief Economist at Banc on in Columbus, Ohio.
Initial claims rose to 432,000 in the Memorial Day holiday-shortened week ended June 2, from 419,000 the prior week, the Labor Department said.
They have not been this high since the week of Sept. 19, 1992, when they stood at 438,000 as the U.S. economy was struggling to emerge from the 1990-91 recession.
A separate government report showed inventories on U.S. wholesalers' shelves edged up 0.3 percent in April as stockpiles of both long-lasting durable goods like automobiles and nondurable items such as clothing and pharmaceuticals increased.
``I'm starting to think that inventories are not clearly going to be detracting from growth,'' Chan said.
Meanwhile, rainy and unseasonably cool weather in the U.S. Midwest and Northeast hindered purchases of summer clothing in May, while the sluggish U.S. economy and high fuel costs cut into traffic at stores and malls, resulting in weak U.S. retail sales for the month.
The anemic results prompted many big retail names like Gap Inc. (NYSE:GPS - news) and Federated Department Stores Inc. (NYSE:FD - news) to warn of weaker sales or earnings and dashed hopes that the pickup in same-store sales in April signaled a broader recovery for the industry.
In early afternoon trading, blue chip stocks slipped with the Dow Jones Industrial Average dropping 28 points. The NASQAQ was up 13 points.
WALL STREET CONCERNS HEIGHTENED
The initial jobless claims report heightened concerns on Wall Street that the worst may not yet be over for the struggling U.S. economy.
``This is further indication of labor market weakness and that's a big worry now -- that the slowdown in growth is going to inflict such damage to employment incomes that consumer spending will fall,'' said Pierre Ellis, senior economist at Decision Economics Inc. in New York.
Wall Street economists expected a modest dip in new claims from the prior week to 417,000.
Cindy Ambler, a Labor Department spokeswoman, noted that the seasonal factors used to adjust the report ``had expected a large drop in the holiday-shortened week and did not get it.''
The closely watched four-week moving average, which irons out week-to-week volatility, rose to 413,500 in the June 2 week from 402,500 the prior week, reaching its highest level since the week of Oct. 3, 1992, when it stood at 417,250.
In a sign that the unemployed are remaining on the rolls longer, continued claims -- those who have already collected at least a week of benefits -- rose to 2,993,000 in the week ended May 26 -- the latest week for which figures are available -- from 2,784,000 the prior week.
The last time continued claims were this high was the week of Nov. 7, 1992, when they reached 3,035,000.
``Things will get worse before they get better. I think today's weekly claims number reveals that as well as the continuing claims number,'' said Banc One's Chan.
FED RATE CUTS EXPECTED
Continued weakness in the labor market is likely to drive further interest rate cuts from the Federal Reserve, which is scheduled to meet later this month.
So far this year, the Fed has cut interest rates five times to help prop up the sagging U.S. economy.
While these rate cuts, coupled with tax relief, are expected to help bring the U.S. into recovery later this year, continued weakness in the labor markets remain a strong signal for more cuts.
``I think the central bank will take this information and probably be more motivated to lower interest rates 50 basis points,'' Chan said, predicting a 25-basis-point cut at their next meeting and an additional 25-point cut in August.
Most Wall Street traders expect short-term rates to be cut by 25 basis points at the Fed's next meeting on June 26-27. According to a Reuters poll, nineteen of the 25 firms that deal directly with the Federal Reserve in open market operations, expect a 25 point cut.
``The labor market is really saying 25 in June and 25 in August is justified,'' Chan said.>> |
