New jobless claims dip less than expected

WASHINGTON - September 3, 2009 While most economists believe the recession has ended, they predict the jobless rate will keep rising until at least next summer as the country struggles to mount a sustained recovery. The worry is that household incomes will remain depressed and consumer spending, which accounts for 70 percent of the total economy, will continue to lag.

"The lack of job creation remains a big headwind for cash-starved and credit-constrained consumers and thus a major impediment for the fledging recovery," Sal Guatieri, senior economist at BMO Capital Markets, said in research note.

Most retailers posted sales declines last month as shoppers restrained back-to-school purchases to focus on necessities. Discounters did better than upscale chains, but the results Thursday raised further concern about the upcoming holiday season.

The Labor Department said the number of laid-off workers applying for benefits dipped to 570,000 last week from an upwardly revised 574,000. That was a weaker performance than the drop to 560,000 claims that economists expected.

The number of people receiving jobless benefits totaled 6.23 million, up 92,000 from the previous week, which had been the lowest level since early April. Economists surveyed by Thomson Reuters had expected that number, which lags new claims by a week, to fall to 6.13 million.

Economists closely watch initial claims, which are considered a gauge of layoffs and an indication of companies' willingness to hire new workers.

First-time claims have trended down in recent months and are well below the recession's high of 674,000 hit in the first week in April. But even with the improvement, they are running at levels well above the 325,000 mark considered a sign of a healthy labor market.

The Labor Department on Friday will release a report on the employment picture in August. Many economists believe it will show the jobless rate rose to 9.5 percent, up from 9.4 percent in July, but that the number of layoffs slowed to 225,000, from 247,000.

In minutes of their August deliberations released Wednesday, Federal Reserve policymakers said that a poor jobs market, evaporated wealth, hard-to-get credit and stagnant wages meant that consumers were still facing "considerable headwinds."

Obama economic adviser Christina Romer said last week that unemployment could reach 10 percent this year and some private economists are forecasting it will hit 10.3 percent next summer before starting to improve.

But Vice President Joe Biden issued an upbeat report card on the economy Thursday, saying that the massive stimulus program had been more effective "than we had hoped."

Still, consumers are not spending enough to boost retailers' bottom lines. Discounter Target Corp. and warehouse club operators Costco Wholesale Corp. and BJ's Wholesale Club Inc. said sales at established stores dropped, but also beat analyst expectations. A 5 percent jump at TJX Cos., which operates discount chains TJMaxx and Marshall's, topped expectations. But upscale retailers, including Saks Inc. and Nordstrom Inc., reported a weak month.

The recession, which began in December 2007 and is the worst since World War II, has eliminated a net total of 6.7 million jobs.

The Labor Department report Thursday showed that the four-week average of initial jobless claims edged up to 571,250 last week, compared with 567,250 the previous week.

Even with the rise in continuing claims to 6.23 million for the week ending Aug. 22, that four-week average dipped slightly to 6.22 million.

When federal emergency programs are included, the total number of jobless benefit recipients was 9.14 million people in the week that ended Aug. 15, down from about 9.18 million the previous week. Congress has added up to 53 extra weeks of benefits on top of the 26 typically provided by the states.

The large number of people remaining on the rolls indicates that unemployed workers are having a hard time finding new jobs.

More job cuts were announced this week. Washington-based manufacturer Danaher Corp. said it will lay off about 3,300 of its roughly 50,000 employees, an increase from the 1,700 cuts it announced in the spring. American Airlines said it is cutting 921 flight attendant jobs as it deals with an ongoing downturn in traffic and lower revenue.

Among the states, California had the largest increase in claims of 8,632, which it attributed to greater layoffs in the construction, trade and service industries. The next largest increases were in Ohio and New Hampshire. The state data lag initial claims by a week.

Michigan had the largest drop in claims of 2,968, which it attributed to fewer layoffs in the auto industry. The next largest decreases were in Florida, Pennsylvania, New Jersey and Alabama.


AP Retail Writer Mae Anderson in New York contributed to this report.

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