Key U.S. factory index slips, jobless claims tumble

By Ros Krasny

CHICAGO (Reuters) - The number of Americans filing for jobless benefits fell to the lowest level since January last week, a decline linked to upheaval in the auto industry, while a key regional manufacturing index slipped more than expected in July, reports showed on Thursday.

A jump in U.S. home foreclosures to a record high in the first half of 2009 and warnings about consumer credit woes underscored the frailty of the U.S. economy at a time many forecasters see the nation poised to climb out of a deep recession that started in December 2007.

"This is going to be a bumpy ride for the next six months for the economy. We are going to have volatility in the data because they are not all going to all turn at the same time," said Kurt Karl, chief U.S. economist at Swiss Re in New York.

The data had a muted impact on U.S. equities markets, and share prices climbed late in the day on optimism about quarterly earnings. The Dow Jones industrial average rose for a third day, finishing up more than one percent.

Economist Nouriel Roubini, chairman of RBE Global Monitor, also helped out sentiment with comments that the worst of the economic crisis is over.

The Philadelphia Federal Reserve said its index of factory conditions in the U.S. Mid-Atlantic region fell to minus 7.5 in July from June's minus 2.2. Analysts had expected a slightly smaller decline this month after a sharp increase in June.

Any reading below zero shows contraction in the business sector in a region that spans eastern Pennsylvania, southern New Jersey and Delaware.

"The number is still in line with the Fed's forecast as we saw in the FOMC minutes, that the economy is not as bad as it looked earlier this year, and that we could be near the end of the recession," said Gary Thayer, senior economist with Wells Fargo Advisors in St. Louis, Missouri.

The central bank's Federal Open Market Committee on Wednesday released minutes from its June policy meeting, including slightly upgraded forecasts on growth for 2009 and 2010.

Among the components of the Philadelphia index, perhaps the most closely watched regional manufacturing measure, employment slipped but new orders were less weak.

The report was termed consistent with views that the initial stages of a U.S. recovery will be far from robust.

"Overall, it is a mixed story. ... But when you look at the bottom line, it is that this index is negative and showing a contraction," said Rudy Narvas, senior analyst at 4CAST Ltd in New York.

JOBLESS SEASONALS DISTORTED

In news on the closely watched jobs market, the U.S. Labor Department said initial claims for state unemployment insurance fell 47,000 to a seasonally adjusted 522,000 in the week ended July 11.

The figure was much lower than expected, but was not seen as a sign of a sudden, sharp improvement in the labor market.