Jobless claims, muted inflation boost recovery

WASHINGTON — New jobless claims dropped to the lowest level since January and the prices of many household goods stayed low last month, positive signs of stability for the fledgling economic recovery.

The decline in jobless claims shows companies are cutting fewer workers, though the drop isn’t yet steep enough to signal new hiring, economists said. And the low level of inflation is holding down prices as Americans slowly regain their appetite to shop despite rising unemployment and tight credit conditions.

Thursday’s reports “all point to an economy that is starting to grow again,” said Bernard Baumohl, chief global economist at the Economic Outlook Group.

Low inflation is consistent with the early stages of an economic recovery, Baumohl said. Even as business activity picks up, unemployment is still high and factories have enough spare capacity to increase output without sending prices higher.

The Labor Department said first-time claims for jobless benefits dropped to a seasonally-adjusted 514,000 from an upwardly revised 524,000 the previous week. The fifth decline in six weeks defied economists’ forecasts of a slight gain.

The four-week average, which smooths fluctuations, fell for the sixth straight time to 531,500. That’s the lowest since January and about 125,000 below the April peak.

Economists closely watch initial claims, which are considered a measure of layoffs and the willingness of companies to add jobs.

The recovery is widely expected to be weak, particularly when it comes to employment. Most economists think weekly jobless claims need to fall to 425,000 or below before the nation will start adding jobs.

The tally of people continuing to claim benefits dropped by 75,000 to 5.99 million, its first time below 6 million since the week of March 28. Continuing claims data lags initial claims by a week.

In a separate report, the Labor Department said consumer prices rose 0.2 percent last month, matching analysts’ expectations. Prices excluding the volatile energy and food categories also rose 0.2 percent.

Over the past 12 months, consumer prices fell 1.3 percent, as the recession kept a lid on inflation. Excluding food and energy, prices rose 1.5 percent.

The lack of inflation has given Federal Reserve policymakers the room to leave interest rates at a record low near zero since December in an effort to give the economy a boost.

The absence of price pressures also has been good news for cash-strapped households, but it means no cost-of-living increase next year for the more than 57 million Americans receiving Social Security and other government benefits, the first time that’s happened in over 30 years.

President Barack Obama on Wednesday urged Congress to provide a one-time payment of $250 to help senior citizens cope with the absence of higher benefit checks next year. Such a payment would cost the government about $13 billion.

The stock market rose modestly Thursday. The Dow Jones industrial average added more than 47 points to close at 10,062.94, and broader indexes also edged up. The Dow broke the 10,000 mark for the first time in a year on Wednesday.

Employers have eliminated a net total of 7.2 million jobs since the recession began in December 2007, sending the unemployment rate to a 26-year high of 9.8 percent last month when 263,000 jobs were lost.

Many analysts expect that job losses will fall below 200,000 in October, which would be the lowest total since August 2008, but that the jobless rate will top 10 percent before beginning a gradual decline late next year.

Some companies are still shedding workers. Ebay Inc. said Wednesday that it would lay off several dozen employees as part of an internal restructuring.

Many jobless benefit recipients have moved onto extended programs. Congress has added about 53 weeks of emergency benefits on top of the 26 weeks typically provided by states. When extended programs are included, a total of 8.87 million people received benefits in the week ending Sept. 26, down 40,000 from the previous week.

Meanwhile, businesses that received federal contracts under the administration’s $787 billion economic stimulus are reporting more than 30,000 jobs saved or created in the first months of the program.

The numbers released by a government watchdog Thursday only reflect jobs linked to federal contracts. Broader data won’t be available until later this month.

The reports come as consumers are showing some signs of life. Retail sales excluding autos rose 0.5 percent in September. That was better than analysts expected and followed a 1 percent gain in August.

Consumer demand, which accounts for 70 percent of total economic activity, is being watched closely by economists who worry that any recovery from the recession could stall due to rising unemployment and other problems.

Most economists forecast the economy will grow at about a 3 percent pace in the second half of 2009. But they warn that won’t be fast enough to bring down the unemployment rate.

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AP Economics Writer Martin Crutsinger contributed to this report.