The number of Americans applying for unemployment benefits rose to a one-month high and companies hired fewer workers than forecast, casting doubt on the vigor of the labor market.
First-time claims for unemployment insurance payments increased by 10,000 to 383,000 in the week ended May 26, Labor Department data showed today. Private employment climbed by 133,000 in May, Roseland, New Jersey-based ADP Employer Services said. The median estimate of 39 economists surveyed by Bloomberg News called for an advance of 150,000.
Stocks and Treasury yields fell as the figures pointed to weakness in the world’s largest economy just as Europe’s debt crisis intensifies. Other reports today showed gross domestic product grew less than initially estimated in the first quarter and business activity in May expanded at the slowest pace in more than two years.
“All the signposts are in the same direction -- which is for slowing job growth,” said Michelle Meyer, a senior U.S. economist at Bank of America Corp. in New York, who projected claims would rise. “The backdrop for consumer spending is weak. This is the recovery of fits and starts and it seems like we are entering a slow patch again.”
The Standard & Poor’s 500 Index slipped 0.2 percent to 1,310.33 at the close of trading in New York. The yield on the benchmark 10-year Treasury note decreased six basis points, or 0.06 percentage point, to 1.56 percent as of 4:59 p.m. after earlier falling to a record 1.5309 percent.
Companies may be wary of adding workers until they see more evidence of a pickup in consumer spending. A Labor Department report tomorrow may show private payrolls rose by 160,000 in May, and unemployment held at 8.1 percent, economists projected. Including government workers, employment probably rose by 150,000 following a 115,000 April increase that was the smallest in six months.
“Businesses have exhibited an extreme degree of caution in terms of capital investment as well as hiring,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut. “Things are just kind of slogging along.”
The Institute for Supply Management-Chicago Inc. said its barometer decreased to 52.7, the lowest since September 2009, from 56.2 in April. Readings greater than 50 signal growth. Economists projected the gauge would rise to 56.8, according to the median of 55 estimates in a Bloomberg survey.
Gross domestic product climbed at a 1.9 percent annual rate from January through March, down from a 2.2 percent prior estimate, reflecting smaller gains in inventories and bigger government cutbacks, according to revised Commerce Department figures released today. The report also showed corporate profits rose at the slowest pace in more than three years and smaller wage gains at the end of 2011.
The U.S. cooled last quarter just as other global economies also lost steam. Growth in the 17-nation euro region stagnated in the first quarter from the same time in 2011. China’s economy expanded 8.1 percent in the first three months of 2012 from a year earlier, the slowest pace in 11 quarters.
Prices in Europe rose at the slowest pace in more than a year as the economic slump showed signs of deepening, according to other figures released today.
Inflation in the 17-nation euro area rose 2.4 percent in May from a year earlier after increasing 2.6 percent in 12 months ended April, the European Union’s statistics office said in Luxembourg. A separate report showed German unemployment fell in May.
Demand in Asia
In Asia, domestic demand spurred an unexpected gain in South Korean industrial production and stronger-than-forecast growth in the Philippine economy.
American households were a mainstay of the U.S. expansion last quarter. Consumer spending climbed at a 2.7 percent annual rate, revised from a 2.9 percent initial estimate and following a 2.1 percent gain in the prior three months. Purchases added 1.9 percentage points to growth.
Revisions to income figures may raise concern about whether purchases can sustain similar gains. Wages and salaries rose by $28.9 billion in the fourth quarter, less than the $89.1 billion gain previously reported. That reduced the saving rate to 4.2 percent at the end of 2011. The rate decreased to 3.6 percent in the first quarter, the lowest since the fourth quarter of 2007.
Gasoline prices have declined since the end of the first quarter, leaving consumers with more to spend on other goods and bolstering confidence in their finances.
The Bloomberg Consumer Comfort Index rose to minus 39.3 in the week ended May 27 from minus 42 in the prior period. The reading was little changed from this year’s average of minus 38.9. All three of its components -- the economy, personal finances and buying plans -- advanced.
“I remain cautiously optimistic about improving economic trends as the year goes on and I feel like our North American business is performing OK in a difficult environment,” Ron Sargent, chief executive officer of office-supply retailer Staples Inc. (SPLS), said during a May 16 earnings call. “We continue to see modest improvement in the U.S. economy and ongoing weakness in Europe.”
In a sign consumers have yet to retrench, Target Corp. (TGT) and TJX Cos. posted May same-store sales that topped analysts’ estimates, helped by warmer weather and lower prices at filling stations.
Purchases at Target, the second-largest U.S. discount retailer, climbed 4.4 percent, beating the average projection for a 3.3 percent gain from analysts surveyed by researcher Retail Metrics Inc. TJX, the owner of the T.J. Maxx and Marshalls retail chains, had an 8 percent increase in same-store sales, topping the 5.1 percent estimate.
Last week’s claims for jobless benefits were the highest since 392,000 in the week ended April 21, and exceeded the median estimate of 370,000 in a Bloomberg News survey. The number of people on unemployment benefit rolls dropped.
“Our monetary policy stance is appropriate,” Pianalto told reporters today after a speech in Cleveland, in which she predicted growth of “slightly above” 2.5 percent this year. The Fed has pledged to keep its key interest rate near zero at least through late 2014.
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