U.S. jobless claims fall; incomes, spending ease

By Lucia Mutikani

WASHINGTON (Reuters) - The number of U.S. workers filing new claims for unemployment aid fell unexpectedly last week, suggesting the pace of layoffs was easing, even as benefit rolls in mid-April swelled to another record high.

The Labor Department data on Thursday supported the view the nearly 17-month-old recession was easing, although a separate report showed consumer spending slipped in March.

A third report showing business activity in the country's Midwest contracted at a less severe rate in April also offered a hint that the economy was no longer in freefall.

"Today's reports reinforced the view that the worst of the economic contraction is behind us, though gross domestic product will continue to trend lower through the second quarter," said Mike Englund, chief economist at Action Economics in Boulder, Colorado.

Initial claims for state unemployment insurance benefits fell by 14,000 to a seasonally adjusted 631,000 last week.

Even more encouraging, the four-week average of new jobless claims, considered a better gauge of underlying labor trends, declined for the third week in a row to 637,250 from 648,000 the week before.

This was the lowest reading since the end of February. The claims data is being monitored for clues when the recession will end.

Christina Romer, chairwoman of the White House Council of Economics Advisers, told reporters the claims data was encouraging, although it was too soon to say if it was strong evidence the labor market was finally starting to heal.

The data and above-forecast earnings from Dow Chemical Co earlier boosted U.S. stocks, but the rally fizzled after auto maker Chrysler filed for Chapter 11 bankruptcy to help it reorganize. The Dow Jones ended down 17.61 points at 8,168.12.

Chrysler will also enter into a deal with Italy's Fiat, which President Barack Obama said will save over 30,000 jobs at the auto maker and hundreds of thousands more at affiliate suppliers and dealers.

SLOWING PACE OF DECLINE

"Jobless claims show signs of moving toward a sideways pattern and may have peaked. The steadying signals a slowing in the pace of decline in the economy," said Tony Crescenzi, chief bond analyst at Miller, Tabak & Company in New York.

"This is possible because business inventories have been falling very rapidly of late and production levels have in many industries fallen sufficiently relative to demand, reducing the need for further cutbacks and hence the need to shed workers."

On Wednesday, the Federal Reserve -- the U.S. central bank -- said the pace of contraction in the economy appeared to be somewhat slower than it was several weeks ago.

But the labor market remains very weak. With demand in the doldrums and fewer companies hiring, the unemployed are finding it tough to reenter the job market.