Jobless claims fall, durable orders mixed

A Fresh Direct employee makes a grocery delivery in New York City, May 6, 2010.

WASHINGTON (Reuters) - New U.S. claims for jobless aid fell last week, indicating healing in the labor market, but declines in new home sales and orders for a range of factory goods in January showed the recovery remains uneven.

The recovery has been slow by historical standards and the unemployment rate remains at a painfully high 9 percent. But analysts see the economy making headway and saw the jobless claims data as evidence of better days ahead.

Initial claims for state unemployment insurance benefits dropped 22,000 to a seasonally adjusted 391,000, the Labor Department said on Thursday, below economists' expectations for a fall to 400,000.

Separate reports from the Commerce Department showed orders for long-lasting manufactured goods excluding transportation items suffered the biggest drop in two years in January, while new home sales tumbled 12.6 percent as a homebuyer tax credit in California ended.

As economists cheered the jobless claims data, which pulled a closely watched four-week moving average to a more than 2-1/2-year low, they shrugged off the other reports. They noted that durable goods orders are extremely volatile and argued that harsh winter weather might have weighed on home sales.

"These three reports do not cause a downgrade in anyone's view of the economy," said Robert Dye, a senior economist at PNC Financial Services in Pittsburgh.

St. Louis Federal Reserve Bank President James Bullard said the improving prospects raised the question of whether the Fed should complete its planned purchase of $600 billion of government debt to support the economy.

Fed officials have set a high bar for tweaking the program and financial markets will look to congressional testimony by Fed Chairman Ben Bernanke next week to try to discern the current state of debate within the U.S. central bank.

Jobless claims are now beneath the 400,000 threshold that economists normally associate with strong nonfarm payrolls growth, and several said it was likely employment would expand by at least 150,000 jobs in February, after January's paltry 36,000 gain.

"The case for payroll growth accelerating to 150,000 or more per month is now stronger," said Tony Crescenzi, a strategist and portfolio manager at PIMCO in Newport Beach, California.

U.S. financial markets largely ignored the data as traders watched the worsening political unrest in Libya. Oil spiked to 2-1/2-year highs near $120 a barrel but retreated in late New York trade, helping stocks to claw back the bulk of earlier losses.

U.S. government debt attracted a safe-haven bid, lifting prices. The dollar was down versus a basket of currencies.

MANUFACTURING STILL BUOYANT

Durable goods orders, excluding transportation, dropped 3.6 percent last month, the biggest fall since January 2009, after rising 3.0 percent in December. Economists had expected a 0.4 percent gain in January.

Overall durable goods orders rose 2.7 percent, the biggest increase since September, after falling 0.4 percent the prior month.

Manufacturing is the key driver of the economy's recovery and economists saw no change to the status quo, citing several surveys which have pointed to strong factory activity.

"There is not enough in that durable goods report to make us change our view that manufacturing continues to be a robust sector of the economy and will continue to drive economic growth through 2011," said Dye.

The sting from the report was blunted by big upward revisions to December's data. Economists said the revisions, coupled with modest improvements in the trade balance and rising inventories suggested the government could raise its measure of fourth-quarter growth to a 3.4 percent annual rate from the 3.2 percent increase reported late last month.

The government will publish its second estimate for fourth-quarter growth on Friday.

The rise in overall durable goods orders last month was driven by a 4,900 percent surge in aircraft bookings, which reflected December orders from Boeing that had not been fully captured in the report for that month

Outside transportation, there were big declines in orders for machinery, computers and communications equipment.

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, dropped 6.9 percent last month, the biggest decline in two years. That followed a 4.3 percent increase in December.

Core capital goods shipments, which go into the calculation of gross domestic product, fell 2.0 percent after rising 2.5 percent in December. Unfilled orders for manufactured durable goods rebounded in January, while inventories rose for the 13th straight month.

New home sales in January were pulled down by a 36.5 percent plunge in the West after spiking 62.5 percent the prior month.

(Additional reporting by Pedro Nicolaci da Costa in Washington and Mark Felsenthal in Bowling Green, Kentucky; Editing by James Dalgleish)