US jobless claims slip back to 639,000

The number of US workers filing for state unemployment benefits fell by 31,000 to a seasonally adjusted 639,000 last week, the US Labor Department said yesterday.

First-time claims fell back to 639,000 from a 26-year high of 670,000 the previous week, likely because of difficulties adjusting for the federal Presidents Day holiday. Analysts expected a smaller drop to 650,000.

The number of people claiming benefits for more than a week fell slightly to 5.1 million from 5.12 million, after rising to record-highs for five straight weeks. Analysts expected 5.15 million continuing claims.

But an additional 1.4 million people were receiving benefits under an extended unemployment compensation program approved by Congress last year. That tally was as of 14 February, the latest data available, and brings the total jobless benefit rolls to about 6.5 million - up sharply from a year ago, when 2.8 million people were receiving benefits.

The smoothed average of new claims over the past four weeks rose to 641,750, the highest since October 1982.

The smoothed average is considered a better gauge of labour market conditions than the volatile weekly number because it smoothes out one-time distortions caused by holidays, bad weather or strikes.

Benefits are generally available for those who lose their full-time job through no fault of their own. Those who exhaust their unemployment benefits are still counted as unemployed if they are actively looking for work.

The jobless claims report shows businesses are laying off workers at a rapid pace, and finding a replacement job is ever harder for those who have lost work.

In a separate report, the government said companies cut their workforce drastically in the fourth quarter, but not enough to match the deep decline in output. Productivity in the nonfarm business sector fell 0.4 per cent, while productivity in the manufacturing sector dropped a record 4 per cent.

Meanwhile, the demand for US-made factory goods fell for the sixth straight month in January, dropping 1.9 per cent on weakness in durable goods orders, the Commerce Department reported on Thursday.

Orders are down 24 per cent since the peak in July, a reflection of how deeply the recession is hitting US manufacturers. Orders have never fallen for six months in a row since the government began collecting the data in 1992.

Orders for durable goods fell 4.5 per cent in January, revised from the higher 5.2 per cent drop estimated a week ago. Orders for civillian aircraft and computers were revised up sharply. Civilian aircraft orders increased 168 per cent, not 82 per cent as reported last week. Computer orders fell 4.1 per cent, not 16 per cent. The first report is based on a smaller sample and large revisions are common.

However, orders for core capital goods equipment - the kind of things companies use to expand or upgrade their productive capacity - were revised lower to a 5.7 per cent decline.

Orders for nondurable goods rose 0.4 per cent, as prices rose for commodities such as petroleum. Orders for petroleum increased 9.8 per cent.

Also, the Labor Department reported that productivity fell 0.4 per cent in the fourth quarter as output plunged faster than companies could cut jobs.

Downward pressure to continue
On Wednesday a report on economy released by the Federal Reserve in the Beige Book said that downward pressure on the economy continued through the last week of February, and business leaders do not expect much relief until late this year at the earliest.

"Looking ahead, contacts from the various districts rate the prospects for near-term improvement in economic conditions as poor, with a significant pickup not expected before late 2009 and early 2010," the survey found.

Real estate and banking, the two sectors that helped bring about the downturn, showed no sign of improvement.

Real estate remained in the doldrums and bank lending declined on net, the survey found.

The Beige Book was prepared in advance of the Fed's next meeting on March 17 to 18. It is designed to give officials a better feel for conditions on the ground through a collection of anecdotes from contacts in the 12 Fed districts.

The survey found that 10 of the 12 districts reported weaker conditions over the period of late January until February 23.

The two districts that did not report worsening conditions -- Chicago and Philadelphia -- said things simply 'remained weak'.

The four-week average of new claims, which smooths out fluctuations, increased 2,000 to 641,750, the highest since October 1982.

More job losses were announced this week. General Dynamics Corp. said Thursday it will lay off 1,200 workers due partly to plummeting sales of business and personal jets that forced it to cut production and reduce its profit guidance for the year. Los Angeles-based aerospace company Northrop Grumman Corp said Wednesday it will lay off 750 workers, mostly in southern California.

Elsewhere, Tyco Electronics Ltd., which makes electronic components, undersea telecommunications systems and wireless equipment, said it is laying off more employees, though it would not say how many.

London-based Diageo PLC, the world's largest producer of alcoholic drinks, said Wednesday it would eliminate 150 positions in North America next month. The company's brands include Ketel One vodka, Baileys and Captain Morgan. And Seagate Technology, meanwhile, said it is cutting 20 perc ent of its vice presidents and other top executives on top of previously announced layoffs.

"There can be no doubt that employers continue to shed labour at a frightening pace, with no end in sight," Ian Shepherdson, chief U.S. economist at High Frequency Economics, wrote in a client note Wednesday.

The nation's unemployment rate in January jumped to 7.6 per cent, the highest in more than 16 years, while employers cut a net total of 598,000 jobs. The government will release February jobs data on Friday and many economists expect the unemployment rate rose to 7.9 per cent while employers cut 648,000 jobs.

Among the states, Illinois reported the biggest increase in new jobless claims with a jump of 3,791 for the week ended Feb. 21, due mainly to layoffs in the construction, trade and manufacturing industries. The next largest increases were in Massachusetts, Missouri, Ohio and California.

Florida had the largest decrease, a drop of 3,586 claims, due to fewer layoffs in the construction, trade and service industries. The next largest drops were in Virginia, New York, Michigan and New Jersey.

In a separate report, the Labor Department said Thursday that worker productivity slid more than expected in the fourth quarter, while wage pressures shot up at the fastest clip in two years.

The department said productivity, the amount of output per hour of work, fell at an annual rate of 0.4 percent in the October-December period. At the same time, unit labor costs surged 5.7 per cent.

While the combination of falling productivity and rising wage pressures would normally raise alarm bells about inflation, the threat of any resurgence of price pressures is seen as remote given the severity of the current recession.