Jobless Claims Hit 9-Year High
Thursday July 12 4:49 PM ET
By Joanne Morrison
<<WASHINGTON (Reuters) - Plant shutdowns as automobile manufacturers retool for next year's models helped drive up first-time U.S. jobless claims last week to the highest level in nine years, the government said on Thursday.
But despite these seasonal layoffs that swelled the ranks of claimants, economists said the report signaled more erosion may lie ahead for the labor market as the economy wavers.
The jobless claims data have received an increasing share of attention as economists try to gauge the health of the labor market amid uncertainty about the future of the U.S. economy.
The number of workers lining up for initial state unemployment benefits rose by 42,000 to 445,000 for the week ending July 7, the Labor Department (news - web sites) said. That was the highest since 539,000 claims in the week ending July 25, 1992.
But a Labor Department official said much of the rise could be attributed to plant closings common in the summer as automobile makers gear up to produce next year's models.
``As we get into the month of July, it is always a difficult and very volatile period for initial claims,'' said Ken Mayland, an economist with ClearView Economics in Pepper Pike, Ohio.
ECONOMY STRUGGLE
Still, economists say the labor market will be hurting for several months as the world's richest economy struggles out of its growth slowdown. A growth slowdown occurs when an economy suffers steep job losses even while continuing to expand.
``The large increase overstates distress in the labor market, but it still indicates that the economy is significantly struggling,'' said Mark Zandi, chief economist at Economy.Com in West Chester, Pa.
Top White House economic adviser Lawrence Lindsey echoed concerns about the labor market on Wednesday.
Lindsey told CNN network that the U.S. unemployment rate could rise to 5 percent or even higher this summer. This would be a substantial jump from a rate of 4.5 percent in June.
The number of workers remaining on state unemployment benefits -- a key barometer of the pace of hiring -- rose to 3,046,000 for the week ended June 30, the latest week for which the data were available. That was the highest level since Oct. 24, 1992, when continued claims hit 3,068,000.
Stocks were unfazed by the data, but soared on Thursday, posting gains not seen for nearly two months, after industry leaders such as software maker Microsoft Corp. (NasdaqNM:MSFT - news) reignited hopes that corporate profits were on the mend.
The Dow Jones industrial average (^DJI - news) jumped almost 238 points, or 2.32 percent, to close at 10,478.99, according to the latest data, while the Nasdaq composite index (^IXIC - news) leaped 103.7 points, or 5.26 percent, to 2,075.74. The benchmark Standard & Poor's 500 (^SPX - news) index rose 27.96 points, or 2.37 percent, to 1,208.14.
INFLATIONARY PRESSURES NOT A WORRY
But offsetting the less than rosy outlook for the labor market, a separate report showed virtually no inflationary pressure in U.S. import prices, leaving the Federal Reserve (news - web sites) room to cut interest rates further when it meets later this summer.
U.S. import prices fell in June, reflecting falls in prices for petroleum, food, industrial and consumer goods, the Labor Department reported.
``There are absolutely zero inflation problems,'' said Zandi.
There was also brighter news for the hard-hit U.S. manufacturing sector, which improved in the second quarter, assisted by a dramatic decline in inventory levels, according to a manufacturing industry group.
An index of manufacturing activity compiled by the Arlington, Va.-based Manufacturers Alliance rose to 35 percent in June, up from a record low of 34 hit in March.
An index below 50 indicates manufacturing activity is expected to fall in the third quarter. But the manufacturing group said the slight rise last month suggested a recovery may be around the corner.
``It is heartening that after falling dramatically last quarter the business outlook survey stabilized,'' Manufacturers Alliance economist Don Norman said. ``This, and the fact that inventory levels declined, provide hope that the manufacturing sector is poised for a recovery starting later this year.''
AUTO LAYOFFS BIGGER THAN EXPECTED
Still, the summer auto plant layoffs seen in the weekly jobless claims totaled 146,000, much higher than the 98,000 the department had expected, an official said.
And while economists typically are less worried about weekly rises in jobless claims at this time of year because of the expected auto plant shutdowns, they look closely at underlying trends in the four-week moving average.
That average, considered a more reliable barometer of employment conditions because it irons out weekly fluctuations, rose to 410,750 last week from 408,250. It has hovered above 400,000 claims since April.
``It does mean people are out of work and it does mean there will be a little less spending,'' said Kurt Karl, chief economist at Swiss Re in New York.>> |
