Jobless Claims Edge Down, Service Sector Adds Jobs

First Published Thursday, 3rd November 2011 04:22 pm - © 2011 Dow Jones


WASHINGTON -- New claims for unemployment benefits fell last week, showing some improvement for the still-weak labor market, while a separate report showed activity in the service sector remained strong in October.

Initial jobless claims fell by 9,000, to a seasonally adjusted 397,000 the week ended Oct. 29, the Labor Department said Thursday.

It was the first time weekly jobless claims fell below 400,000 since the week ended Sept. 24. Most economists believe jobless claims must fall below that mark for the economy to add more jobs than it is shedding.

While the data was encouraging, improvement likely has been too small to reduce the persistently high unemployment rate. The government's official tally of U.S. employment will be released Friday and economists predict the rate will remain unchanged at 9.1%. The Federal Reserve Wednesday signaled it may take new steps to boost a jobs market it fears could stagnate for many more years.

The four-week moving average of new jobless claims, a more reliable indicator of the labor market's performance because it smoothes out volatile weekly figures, remained above the key threshold at 404,500 last week.

A separate report issued Thursday underscored the resilience of the services sector this year, which appears to have taken over from manufacturing in fueling the recovery.

The Institute for Supply Management's purchasing managers' index came in at 52.9 in October, nearly unchanged from the 53.0 in September. Measurements above 50 indicate expansion. The ISM non-manufacturing report is comprised mainly of comments from service-sector companies that make up the bulk of the U.S. economy, but it also includes construction and public administration.

The ISM non-manufacturing report's employment index increased to 53.3 last month, its highest mark since June, and up from a contractionary 48.7 in September.

"If sustained, that's consistent with private payrolls rising by about 150,000 per month," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.

A separate Labor report showed that nonfarm business productivity rose at a 3.1% annual rate in July through September, after dropping the first two quarters of the year. The improvement came as the U.S. economy accelerated in the third quarter, growing at a 2.5% annual rate.

The productivity report was in line with economists' forecasts, but a 2.4% drop in unit labor costs in the third quarter, compared to the second, was larger than the projected 1.2% fall.

With unemployment high, workers are in a weaker position to demand higher salaries, allowing companies to keep labor costs in check.

Businesses have indicated that they have "anemic hiring plans, as opposed to mass layoffs, which explains the low levels of employment growth coupled with meager improvement in the level of claims," economists at Nomura Securities International Inc. said in a report Thursday.

Federal Reserve Chairman Ben Bernanke on Wednesday called on Congress and the White House to assist the central bank in boosting employment. The Fed is projecting unemployment will remain near or above the 8% mark through 2013.

In a positive sign, a Commerce Department report issued Thursday showed that U.S. factory orders rose for the third consecutive month in September.

Orders climbed by 0.3% from the prior month, to $453.54 billion, beating economists' forecasts for a 0.2% decline.

-By Eric Morath and Luca Di Leo, Dow Jones Newswires; 202-862-9279; eric.morath@dowjones.com

--Jeffrey Sparshott, Tom Barkley and Kathleen Madigan contributed to this article.

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