Jobless claims fall, still volatile due to auto jobs

WASHINGTON Thu Jul 26, 2012 12:34pm EDT

Job seekers attend a large career fair at Rutgers University in New Brunswick, New Jersey, January 6, 2011. REUTERS/Mike Segar

Job seekers attend a large career fair at Rutgers University in New Brunswick, New Jersey, January 6, 2011.

Credit: Reuters/Mike Segar

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WASHINGTON (Reuters) - The number of Americans filing new claims for jobless benefits fell last week to near a four-year low but an unusual pattern for summer factory shutdowns kept hopes in check that the weak labor market was improving.

Other data on Thursday showed new orders for long-lasting U.S. manufactured goods rose in June although a gauge of planned business spending plans dropped, pointing to a slowdown in factory activity.

Economists said the two economic reports did little to change the view that the economy was stuck in a rough patch.

"They both look good on the surface, but I don't think there's really anything to get excited about," said Stephen Stanley, an economist at Pierpont Securities in Stamford, Connecticut.

A third report showed contracts to buy previously owned U.S. homes unexpectedly fell in June, a worrisome sign for the housing market.

The labor market has suffered three months of sub-100,000 job growth as the economy suffered from fears over Europe's debt crisis and a planned belt tightening by the U.S. government.

Last week, initial claims for state unemployment benefits dropped 35,000 to a seasonally adjusted 353,000, the Labor Department said, near a four-year low touched earlier this month. That was a much sharper drop than economists expected.

The reading for jobless claims has been volatile this month because of the timing of the annual auto plant shutdowns for retooling. One measure that tries to smooth out this volatility, the four-week moving average, fell 8,750 last week to 367,250.

"The good news there is on average over the last four weeks the number is improving," said Art Hogan, managing director of Lazard Capital Markets in New York.

This year, automakers are carrying out fewer temporary plant shutdowns, throwing off the model the department uses to smooth the data for typical seasonal patterns.

U.S. stocks rose sharply after remarks by Europe's central bank chief about protecting the euro zone from collapse helped reassure a market already expecting the U.S. Federal Reserve to step up stimulus efforts. Yields on government debt also rose.

Fed Chairman Ben Bernanke told lawmakers last week that the U.S. central bank, which last month expanded its efforts to spur the economy, would take additional action if officials concluded no progress was being made towards higher levels of employment.

Little action, if any, is expected at the Fed's policy review next Tuesday and Wednesday, although some economists think the Fed could tell investors it will keep interest rates low for even longer than currently pledged.

The Labor Report will release its monthly employment report on Friday of next week, which is expected to show a still-tepid rate of job creation this month.

In a separate report, the Commerce Department said durable goods orders increased 1.6 percent in June, but this was mostly because demand for aircraft surged.

Details of the report were generally weak, with declines in new orders for computers, electrical equipment and appliances and machinery. Factoring out transportation, new orders dropped 1.1 percent.

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, fell 1.4 percent. This could be another sign that worries about Europe's woes and tighter fiscal policy in Washington are hampering economic growth, said Scott Brown, an economist at Raymond James in St. Petersburg, Florida.

"Al these things have made companies reluctant to make big capital investments," Brown said.

Manufacturers are feeling the pinch as the global economy slows. United Technologies Corp reported a 4.6 percent drop in quarterly sales as a slowing Chinese economy and Europe's financial woes eroded demand for its elevators and jet engine parts.

Shipments of non-defense capital goods orders excluding aircraft, used to calculate equipment and software spending in the gross domestic product report, increased 1.2 percent in June. The increase suggests spending on equipment and software grew in the second quarter, but probably nowhere near levels seen in 2011.

The government is expected to report on Friday that the economy grew at a 1.5 percent annual rate in the second quarter, according to a Reuters survey, slowing from the 1.9 percent rate in the prior three months.

Housing has been a relative bright spot in the U.S. economy this year, but the National Association of Realtors said its Pending Home Sales Index, based on contracts signed in June, slipped 1.4 percent during the month.

Economists have been optimistic that the housing sector, which collapsed during the 2007-2009 recession, was showing signs of life, as prices have appeared to stabilize. Thursday's report, however, appeared to dampen some of that optimism.

"It's another clear sign that a bottom may be close, but has not yet been found in housing," said Omer Esiner, a market analyst at Commonwealth Foreign Exchange.

(Additional reporting by Lucia Mutikani in Washington and Richard Leong and Edward Krudy in New York; Editing by Andrea Ricci)

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