WASHINGTON (Reuters) - New claims for jobless benefits hit a near three-month low last week, suggesting some let up in the labor market's distress but likely not enough to keep the Federal Reserve from easing monetary policy further.
Initial claims for state unemployment benefits dropped 11,000 to 445,000, the lowest since the July 10 week, the Labor Department said on Thursday. Financial markets had expected claims to edge up to 455,000.
"The fact that claims are coming down in such a way suggests the labor market has a firmer underpinning than we may know," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York. Still, he added: "It would not hurt if the Fed put another log on the fire."
Sales at U.S. retail chains last month also showed unexpected strength. U.S. same-store sales rose 2.8 percent, according to Thomson Reuters data that tracks 28 top chains, beating analysts' estimates for a 2.1 percent increase.
Sales, which rose for the 13th straight month, were boosted by back-to-school buying.
U.S. stocks opened higher on the reports, but ended down. Prices for shorter-dated U.S. Treasuries rose slightly on expectations of further monetary easing by the Fed.
The U.S. central bank's policy-setting committee meets on November 2-3. The Fed, which cut overnight interest rates to near zero in December 2008, has already pumped $1.7 trillion into the economy by buying mortgage-related and government bonds.
The prospect of further bond purchases pushed the dollar down to a 15-year low against the Japanese yen and an all-time low against the Swiss franc on Thursday. <FRX/>
While financial markets appear to have priced in a second phase of quantitative easing, there is no consensus among policymakers on the need for more stimulus.
Kansas City Fed President Thomas Hoenig, who has consistently dissented from the U.S. central bank's easy money policies, said he opposed any additional easing. His counterpart at the Dallas Fed, Richard Fisher, said he wanted to hear all arguments before making a decision.
Financial markets will likely take a further cue from a U.S. government report on September employment on Friday.
Nonfarm payrolls were likely unchanged last month as more temporary U.S. Census jobs ended and cash-strapped state and local governments laid off workers, even as private hiring picked up, according to a Reuters survey.
The initial benefit claims data has little bearing on the closely followed monthly jobs report because it covered a week that fell outside the report's survey period.
DOWNSIDE RISK TO PAYROLLS
There is a risk employment declined again in September after an independent report on Wednesday showed private employers unexpectedly cut jobs during the month. Many analysts, however, have not changed their forecasts.
"The ADP is very reliable and as good as that is among the best of the indicators that one could possibly have, it has been off, and consistently off, this year by an average of seventy-five thousand per month," said Steven Wieting, an economist at Citigroup on New York.
Although the longest and deepest recession since the 1930s ended in June 2009, the recovery has been unusually sluggish and the economy is still far from full health.
The International Monetary Fund on Wednesday cut its forecast of U.S. economic growth for 2011 to 2.3 percent from its July projection of 2.9 percent.
The sickly economy, characterized by 9.6 percent unemployment rate expected to rise to 9.7 percent in Friday's report, is making Americans increasingly despondent about their future, a factor that could determine the outcome of midterm congressional elections on November 2.
Opinion polls suggest the Democratic Party's hold on Congress will weaken, with Republicans expected to take over the U.S. House of Representatives.
But the labor market is showing some improvement. The four-week average of new jobless claims, considered a better measure of underlying labor market trends, fell 3,000 to 455,750, the lowest level since the July 24 week.
The second straight week of declines in new applications for unemployment benefits pushed them further away from a nine-month high of 504,000 touched in mid-August. Claims are now in the upper end of the 400,000 to 450,000 range that analysts say is normally associated with labor market stability.
The number of people still receiving benefits after an initial week of aid dropped 48,000 to 4.46 million in the week ended September 25, the lowest since June 26.