Jobless claims indicate economy remains weak

WASHINGTON - Even though new claims for jobless benefits fell more than expected last week, dipping below 600,000 for the first time since early January, the number of Americans seeking this safety net points to an economy that is still very weak.

Layoffs are slowing, but jobs are scarce, leaving nearly 7 million Americans collecting unemployment checks and retailers looking for customers.

The number of newly laid-off workers requesting unemployment insurance fell by 52,000 to a seasonally-adjusted 565,000, the Labor Department said Thursday. But the drop was mostly due to a shift in the timing of auto-related layoffs, leading many economists to discount the decline.

Weekly claims remain far above the 300,000-350,000 range that analysts say is consistent with a healthy economy. New claims last fell below 300,000 in early 2007. The lowest level this year was 488,000 for the week ended Jan. 3.

Thursday's figure indicates that "very steep job losses" likely will continue and that the unemployment rate will keep rising, said Zach Pandl, an economist at Nomura Securities International.

Claims may not drop to 350,000 until the middle of next year, he said.

Employers cut 467,000 jobs in June, more than analysts expected, while the unemployment rate rose to 9.5 percent, the highest in 25 years. The lack of jobs is limiting consumer spending, which will weaken or even delay any economic recovery.

Retailers reported yet another sluggish month of sales in June, increasing concerns about the critical back-to-school season. Among the most worrisome signs were the sharp sales declines from mall-based shops that cater to teens like Abercrombie & Fitch and American Eagle Outfitters, indicating that parents will keep scouring for bargains at discount chains.

The International Council of Shopping Centers-Goldman Sachs same-store sales tally for June fell 5.1 percent from a year ago, steeper than 4.5 percent decline that analysts expected. Same-store sales - sales at stores open at least a year - are considered a key indicator of a retailer's health.

The results marked the 11th consecutive month of same-store sales decreases, and some analysts expect that trend to continue through the rest of the year as consumer spending is constrained by tight credit and a weak job market.

Meanwhile, the number of people on the jobless benefit rolls jumped 159,000 to 6.88 million, the Labor Department said. That's the highest tally on records dating from 1967. Continuing claims had fallen in two of the previous three weeks. The data lag initial claims by a week.

Economists said the increase showed employers remain hesitant to add new workers, despite some recent signs the economy is stabilizing.

"The problem is, no one is hiring," said Mark Vitner, senior economist at Wells Fargo Securities.

That will likely keep driving up the unemployment rate even as layoffs slow, he said. Wells Fargo projects the rate will peak at 10.5 percent next year.

Continuing claims need to drop by at least 500,000 before the jobless rate will improve, Vitner said. In a healthy economy, the continuing claims rolls are closer to 3 million, or less than half their current total.

Vitner expects the economy to grow modestly in the second half of this year, but that doesn't mean many jobs will be available. "Just because the recession ends doesn't mean the economy is out of the woods," he said.

When federal and state emergency programs are added, the total benefit rolls are even higher.

More than 2.8 million people are receiving unemployment insurance under the programs, which add up to 53 weeks of benefits on top of the typical 26 weeks. The data for the emergency programs lags the initial claims by two weeks. All told, about 8.9 million people received jobless benefits the week ending June 20.

Economists are closely watching the level of first-time claims for signs the economy will recover in the second half of this year.

But the change in the timing of auto layoffs will likely muddy the picture for several weeks. Carmakers usually close their plants in early July to prepare for next year's models, causing a spike in layoffs. But those cuts took place in May and June instead as General Motors Corp. and Chrysler LLC sought bankruptcy protection and implemented sweeping restructuring plans.

The financial markets ended Thursday with modest gains. The Dow Jones industrial average added about 5 points to 8,183.17, while broader indices also ticked up.

Elsewhere, the Commerce Department said wholesale inventories dipped 0.8 percent in May, slightly smaller than the 1 percent decline economists expected.

Sales at the wholesale level rose 0.2 percent, better than the expected flat reading. The hope is that sales will soon stabilize and help convince businesses that they need to restock, a shift that will boost the ailing manufacturing sector.

Consumers and businesses have cut back on spending in response to the bursting of the housing bubble and the financial crisis, sending the economy into the longest recession since World War II.

--

AP Retail Writer Anne D'Innocenzio contributed to this report from New York.