U.S. Initial Jobless Claims Fall 10,000 to 425,000

By Timothy R. Homan

Aug. 28 (Bloomberg) -- The number of Americans collecting unemployment insurance rose to the highest level in almost five years, a sign companies remain reluctant to hire.

The number of Americans filing first-time claims for unemployment benefits decreased by 10,000 to 425,000 in the week ended Aug. 23, from a revised 435,000 the prior week. The number of people staying on rolls rose to 3.423 million, the highest since November 2003.

Companies are trimming staff and freezing hiring plans as demand softens, forcing workers to stay on government assistance. Rising unemployment heightens job-security concerns and contributes to a slowdown in consumer spending, which accounts for more than two-thirds of the economy.

``The labor market may continue to weaken,'' said Russell Price, a senior economist at H&R Block Financial Advisors Inc. in Detroit. ``It's become clear that second half growth isn't going to be as strong as the first half, so businesses are going to finally start to trim payrolls a little more.''

Another government report showed the U.S. economy expanded at a faster pace than previously estimated in the second quarter, helped by surging exports and a smaller decline in inventories.

GDP Growth

The 3.3 percent increase in gross domestic product from April through June was higher than forecast and compares with an advance estimate of 1.9 percent issued last month, the Commerce Department said today in Washington. The economy grew at a 0.9 percent pace in the first quarter.

Economists had forecast unemployment claims would fall to 425,000 from a previously reported 432,000 in the prior week, according to the median of 41 projections in a Bloomberg News survey. Estimates ranged from 410,000 to 450,000.

The four-week moving average of initial claims, a less volatile measure than the weekly figure, dropped to 440,250 from 446,250, today's report showed.

So far this year, weekly claims have averaged 375,400, compared with 321,000 for all of 2007.

The jump in claims that began in the middle of July can be attributed to the government's extension of jobless benefits under the spending bill signed by President George W. Bush in June. The government hasn't been able to quantify the program's impact on initial claims.

The unemployment rate among people eligible for benefits, which tends to track the jobless rate, rose to 2.6 percent from 2.5 percent. Thirteen states and territories reported an increase in claims, while 40 had a decrease. These data are reported with a one-week lag.

Payrolls Report

Economists forecast the Labor Department will report on Sept. 5 that the U.S. lost jobs in August for an eighth straight month. Payrolls fell by 51,000 in July, bringing the total decline this year to 463,000, as the jobless rate rose to 5.7 percent from 5.5 percent the prior month.

Abbott Laboratories, the fourth-largest U.S. drugmaker, said last week that it plans to cut 1,000 jobs and transfer some operations to Europe to reduce expenses.

Rising prices and lower job and wage prospects may weaken consumer spending through the rest of the year. U.S. retail sales declined in July for the first time in five months, the Commerce Department said Aug. 13.

Consumers also are pessimistic about the job market. The Conference Board's confidence index for August released this week showed the share of people saying jobs are hard to get increased to the highest level since October 2003.

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net