Christopher S. Rugaber
514K new jobless claims; inflation remains muted
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.
The Labor Department said Thursday that 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 was below Wall Street economists’ forecasts, according to Thomson Reuters.
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 peak reached in early April.
Economists closely watch initial claims, which are considered a measure of layoffs and the willingness of companies to add jobs.
“Claims are not yet low enough to indicate rising payrolls, but they certainly suggest” that net job cuts will be lower in October than last month, Ian Shepherdson, chief U.S. economist at High Frequency Economics, wrote in a note to clients.
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.
Many economists expect that job losses will fall below 200,000 in October from 263,000 in September. That’s still a large amount, but would be the lowest total since August 2008.
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, slightly higher than the 0.1 percent increase analysts had forecast.
Over the past 12 months, consumer prices fell 1.3 percent, reflecting a severe recession that has kept a lid on inflation across a wide range of products and services. Excluding food and energy, prices rose 1.5 percent.
Food costs slipped 0.1 percent in September, reflecting lower prices for meat and fresh vegetables. Clothing prices rose only 0.1 percent, and housing costs were flat compared with August.
Gas prices rose 1 percent, though they are down 21.6 percent from last year when prices at the pump moved above $4 per gallon in the summer.
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.
However, 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 fell in morning trading. The Dow Jones industrial average lost about 15 points, and broader indexes also slipped. The decline pushed the Dow to the 10,000 mark that it had topped Wednesday for the first time in a year.
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.
Despite the improvement, the more than 500,000 jobless claims remain above the roughly 425,000 that many economists say would indicate the economy is adding jobs.
Many recipients have moved onto extended benefit 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, the latest week data is available. That’s down about 40,000 from the previous week.
Meanwhile, businesses that received federal contracts under the Obama 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, such as construction at military bases or within national parks. Broader data won’t be available until late this month.
The reports come as consumers are showing some signs of life. Retail sales fell in September due to a sharp drop in auto sales, according to a government report Wednesday. But excluding autos, sales rose 0.5 percent in September. That was better than analysts expected and followed a 1 percent gain in August.
Auto sales had been inflated in August by the government’s Cash for Clunkers program, which provided $4,500 rebates to consumers who traded in older vehicles for newer, more fuel-efficient models.
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, tight credit and other headwinds that households still face.
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. Fed Chairman Ben Bernanke has said that even with 3 percent growth, the jobless rate will remain above 9 percent through 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.
Among the states, Pennsylvania had the largest increase in claims, with 3,618, which it attributed to layoffs in the construction, primary metals, furniture and food industries. The next largest increases were in Washington, Wisconsin, Missouri and Texas. The state data lag initial claims by one week.
Florida reported the largest drop in claims, with 5,178, which it attributed to fewer layoffs in the construction, service and manufacturing industries. California, Tennessee, Illinois and Arkansas had the next largest drops.
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AP Economics Writer Martin Crutsinger contributed to this report.
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