Economy
Clkarence Tabb, Jr.  /  AP
Lois Hussain, left, a special education administrator, gives instructions to Meghan Flowers, a special ed. teacher at Southwestern H.S., before she goes on her interviews in Detroit. The number of newly laid-off workers filing claims for unemployment benefits rose unexpectedly last week, while continuing claims fell sharply.
updated 8/13/2009 9:51:23 AM ET 2009-08-13T13:51:23

The number of newly laid-off workers filing claims for unemployment benefits rose unexpectedly last week and retail sales disappointed in July. The latest government reports reinforced concerns about how quickly consumers will be able to contribute to a broad economic recovery in the U.S.

"There is really no positive spin to put on these numbers," Jennifer Lee, an economist with BMO Capital Markets, wrote in a research note. "The U.S. consumer remains very weak. The jobs situation, while slowly improving, is still dismal."

The Labor Department says initial claims increased to a seasonally adjusted 558,000, from 554,000 the previous week. Analysts expected new claims to drop to 545,000, according to Thomson Reuters.

The number of people remaining on the benefit rolls, meanwhile, fell to 6.2 million from 6.34 million the previous week. Analysts had expected a smaller decline. The continuing claims data lags initial claims by one week.

The four-week average of initial claims, which smoothes out fluctuations, rose by 8,500 to 565,000. That reverses six straight weeks of decline.

Meanwhile, the Commerce Department said retail sales fell 0.1 percent last month. Economists had expected a gain of 0.7 percent.

While autos, helped by the start of the Cash for Clunkers trade-in program, showed a 2.4 percent jump — the biggest in six months — there was widespread weakness elsewhere. Gasoline stations, department stores, electronics outlets and furniture stores all reported declines.

The July dip was the first setback following two months of modest sales gains. Excluding autos, sales fell 0.6 percent, worse than the 0.1 percent rise economists had forecast.

Gas station sales plunged 2.1 percent, due more to falling pump prices than weak demand. Excluding that drop, retail sales would have posted a modest 0.1 percent increase.

Department store sales fell 1.6 percent and the broader category of general merchandise stores, which includes big chains such as Wal-Mart Stores Inc. and Target Corp., posted a decline of 0.8 percent.

The July weakness highlighted worries about the potential strength of the recovery from the recession. Consumer spending accounts for about 70 percent of total economic activity.

"Households are in no position to drive a decent economic recovery," Paul Dales, U.S. economist at Capital Economics, wrote in a note to clients.

Initial claims reflect the pace of layoffs by employers. The Labor Department last week said companies cut 247,000 jobs in July, a large amount but still the smallest number in almost a year.

The unemployment rate dipped to 9.4 percent in July from 9.5 percent, its first drop in 15 months.

There were 617,000 new jobless claims in late June, before the figures were distorted last month by a shift in the timing of temporary auto plant shutdowns. That shift caused claims to drop sharply and then jump up last month.

Claims fell steeply last week, however, when the data were no longer affected by the distortions.

Still, initial claims remain far above the roughly 325,000 that economists say is consistent with a healthy economy. New claims last fell below 300,000 in early 2007.

Including federal emergency benefit programs, 9.25 million people received unemployment compensation in the week ending July 25, the latest data available. That's down from a record of 9.35 million the previous week. Congress has added up to 53 extra weeks of benefits on top of the 26 typically provided by the states.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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