First-Time Jobless Claims in U.S. Unexpectedly Decrease to Four-Month Low
Claims for U.S. unemployment benefits unexpectedly dropped last week to a four-month low, signaling the job market is being hampered by a lack of hiring rather than more firings.
The number of applications for unemployment insurance payments fell 7,000 in the week ended Aug. 6 to 395,000, the fewest since early April, the Labor Department said today in Washington. Other reports showed the trade gap widened in June to the highest level since October 2008 and consumer confidence dropped last week.
Stocks rebounded after benchmark indexes yesterday sank to the lowest level in 11 months as the decrease in worker dismissals relieved investor concern the recovery was stumbling. Companies like Cisco Systems Inc. (CSCO) are among those seeing little sign of recession even as their customers say they will keep a lid on payrolls.
Claims are “moving in the right direction, we’re coming down gradually,” said Julia Coronado, chief economist for North America at BNP Paribas in New York. “At least we’re still not seeing deterioration yet” in the labor market from volatility in financial markets, she said.
The Standard & Poor’s 500 Index climbed 4.6 percent to 1,172.63 at 4 p.m. in New York. Treasury securities fell, pushing the yield on the 10-year note up to 2.33 percent from 2.11 percent late yesterday.
The median forecast of 48 economists surveyed by Bloomberg News projected claims would increase to 405,000. Estimates ranged from 390,000 to 450,000. The Labor Department revised the prior week’s figure to 402,000 from the initially reported 400,000.
Cisco, the world’s biggest maker of networking equipment, has reined in operating expenses, unveiling a plan to cut about 6,500 jobs worldwide. Profit and sales at the San Jose, California-based company for the fiscal fourth quarter beat analysts’ estimates.
“Our customers are saying they do not see a recession, they are however going to be very hesitant about hiring,” John Chambers, Cisco’s chairman and chief executive officer, said in a Bloomberg Television interview today. “Unfortunately I think it’s gonna be a very tough job market.”
American companies also found it difficult to sustain sales abroad. The trade deficit unexpectedly rose 4.4 percent in June to $53.1 billion from $50.8 billion in the prior month, Commerce Department figures showed. The widening was paced by a 2.3 percent slump in exports, the biggest decline since January 2009, as overseas demand for everything from soybeans and plastics to industrial engines and generators decreased.
The drop in foreign sales undermines one of the few remaining pillars of the recovery.
“The real weakness was in exports and that’s consistent with slower growth in the rest of the world,” said Jay Bryson, a global economist at Wells Fargo Securities LLC in Charlotte, North Carolina. Exports’ contribution to economic growth “is going to be a little more shaky,” he said.
American households are also becoming increasingly concerned about the economy. Consumer confidence dropped last week to the lowest level since mid-May as high earners, homeowners and those working full time turned more pessimistic, the Bloomberg Consumer Comfort Index showed today.
The sentiment gauge dropped to minus 49.1 in the period to Aug. 7, and the second-lowest level in a year, from minus 47.6 the prior week. The measure was less than five points away from the record low of minus 54 reached in November 2008, during the depths of the last recession.
The biggest one-week plunge in stocks since 2008 followed by the downgrade of the country’s top credit rating may even be unnerving those who are fully employed and earning more than $100,000 a year. Rising concern among such households, which have the wherewithal to spend, poses a risk to a recovery that Federal Reserve policy makers said this week was already advancing “considerably slower” than projected.
The Labor Department’s report on jobless claims showed the number of people continuing to collect benefits dropped by 60,000 in the week ended July 30 to 3.69 million. The decrease was the biggest since February.
Those who’ve used up their traditional benefits and are now collecting emergency and extended payments decreased by about 16,000 to 3.7 million in the week ended July 23.
The economy added 117,000 jobs in July, bringing the average gain in payrolls over the past three months to 111,000, a Labor Department report showed last week. That was about half the 204,000 increase on average in the first four months of the year.
Slowing job growth and a weakening economy were among reasons cited by Fed policy makers this week in their decision to keep the benchmark lending rate near zero “at least” through mid-2013.
The recent volatility in financial markets and mounting concern that the recovery will falter as government agencies, businesses and consumers cut spending may prove hurdles to bigger increases in employment.
“It’s still an open question as to whether the decline in confidence of late will lead to a slowdown in hiring,” said BNP’s Coronado. “But there will be some knock-on effects from the volatility and worries.”
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