Business - Washington, D.C. First-time jobless claims drop for second week

By Christopher S. Rugaber

AP Economics Writer

WASHINGTON (AP) -- New claims for unemployment insurance fell for the second straight week, fresh evidence the job market is slowly improving.

And productivity grew at a slower rate in the first quarter of this year than previously thought, suggesting that businesses are reaching the limits of their ability to boost output with fewer workers. That implies they will need to hire more employees.

The Labor Department said Thursday that initial claims for jobless benefits dropped last week by 10,000 to a seasonally adjusted 453,000. That nearly matches analysts' forecasts, according to Thomson Reuters.

Still, the declines come after a sharp increase three weeks ago, and claims remain at elevated levels.

Initial claims are closely watched by economists because they are considered a gauge of layoffs and a measure of companies' willingness to hire new workers.

After falling steadily in the second half of last year, claims have leveled off and are now only slightly below the level they were at the beginning of this year. That's raised concerns among some economists that hiring is still sluggish.

The four-week average, which smooths volatility, rose for the third straight week to 459,000. That's down by only 8,000 from its level in mid-January.

Claims above 400,000 are generally associated with a shrinking economy. But many economists attribute the current high level of claims to another cause.

They say it reflects a greater willingness by laid-off workers to seek unemployment benefits. In a healthier economy, workers who lose jobs expect to find another one quickly and don't necessarily file for jobless aid.

Separately, the department said productivity advanced at an annual rate of 2.8 percent in the January-March period. That is the slowest pace in a year and much lower than the 3.6 percent that the government initially reported a month ago.

While higher productivity raises living standards in the long run, a slowdown from recent large gains could mean companies will need to add jobs in order to keep up with growing demand.

Employers are starting to ramp up hiring as the economy recovers from the worst recession since the 1930s, but not quickly enough to bring down the jobless rate. Unemployment rose to 9.9 percent in April from 9.7 percent the previous month, even as the economy generated 290,000 jobs.

The rate rose partly because nearly a million people began or resumed job searches that month, increasing the size of the labor force.

The number of people continuing to claim benefits rose by 31,000 to 4.67 million, according to Thursday's report. Analysts had expected the total benefit rolls to remain level.

But that doesn't include the 5.4 million people receiving extended benefits, paid for by the federal government. Congress has added 73 weeks of extra benefits on top of the 26 weeks typically provided by states. All told, about 9.8 million people received unemployment insurance in the week ending May 15, the most recent data available.

The claims figures come a day before the Labor Department is scheduled to release the May jobs report. Analysts expect that report to show the economy added 513,000 jobs, the most in 26 years. But at least 300,000 of those positions are likely to be temporary Census workers.

The unemployment rate is forecast to fall to 9.8 percent, according to Thomson Reuters.

The economy is growing, but at a weaker pace than in many previous recoveries. The Commerce Department said last week that the nation's gross domestic product -- the broadest measure of economic output -- grew at a 3 percent annual rate in the January-to-March quarter. That was much slower than the fourth quarter's 5.6 percent growth.

That pace isn't rapid enough to quickly reduce unemployment. After the last severe recession in the early 1980s, GDP grew at rates of 7 to 9 percent for five straight quarters and the unemployment rate dropped from 10.8 to 7.2 percent in 18 months.

Economists expect the jobless rate to slowly decline by the end of this year but remain above 9 percent.

Some companies are still laying off employees. At the same time, rising auto sales have led some automakers to add jobs. Chrysler LLC said last month it will hire 1,100 new workers at a plant in Detroit to help build the new Jeep Grand Cherokee. Ford Motor Co., meanwhile, said in May that it will add 170 jobs in two factories near Detroit to make parts for its hybrid cars.

Published: Fri, Jun 4, 2010