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Jobless claims fall by largest amount in months

The number of laid off workers filing claims for unemployment plunged last week by the largest amount in eight months, but it might have been a statistical fluke.
/ Source: The Associated Press

The number of laid off workers filing claims for unemployment plunged last week by the largest amount in eight months, but it might have been a statistical fluke.

The Labor Department reported Thursday that 302,000 people filed for benefits last week, down 35,000 from the previous week. Analysts had expected decline of about 6,000.

It was the biggest one-week improvement since jobless claims fell by 65,000 during the week ending Sept. 24. During that period, claims figures were buffeted by massive layoffs from the Gulf Coast hurricanes.

Analysts cautioned against reading too much into last week’s improvement. They noted it occurred during a holiday-shortened week when residents of many states would have had one fewer day to file their applications for benefits.

Many analysts are forecasting that the jobless claims numbers will begin rising on a sustained basis in coming months, signaling a slowing economy. In the most dramatic indication of that slowdown so far, the government reported last week that businesses created just 75,000 new jobs in May, far below the 170,000 job gain that analysts had been expecting.

“The real story in the labor market right now is the slowdown in hiring, not the rise in firings captured by the claims numbers,” said Ian Shepherdson, chief economist at High Frequency Economics, a consulting firm.

He predicted that claims would rebound greatly from what he saw as an artificially depressed reading caused by the holiday closing of many claims offices.

In other news, the Bush administration released an updated forecast for this year, predicting the economy will grow by 3.6 percent, when measured from the fourth quarter of last year. That projection is slightly better than the 3.4 percent estimate made six months ago.

The administration said the faster growth will result in stronger employment and this year’s spike in energy prices will mean inflation will be slightly higher.

The unemployment rate, which is based on a survey of households rather than business payroll analysis, fell to a five-year low of 4.6 percent last month. Private economists believe that rate will start rising as the economy slows.

The 302,000 total jobless claims last week was the lowest level since 301,000 laid off workers showed up at benefit offices in the week ending April 1.

The four-week moving average edged down slightly to 327,750, compared to 333,500 for the previous week. That was the lowest level for the four-week average in a month.

Wall Street had hoped that last week’s unexpectedly weak employment report would prompt the Federal Reserve to declare a halt to its two-year drive to raise interest rates as a way of slowing the economy and keeping inflation under control.

But Federal Reserve Chairman Ben Bernanke said Monday that the central bank was worried about rising inflation pressures. His remarks were seen as a signal that the central bank will raise rates for a 17th time when policy-makers next meet, on June 28-29.

Disappointed investors pushed the Dow Jones industrial average down by 199 points on Monday with further declines on Tuesday and Wednesday. Some economists worry that the central bank could overdo its credit-tightening and raise the risks of a hard landing for the economy, possibly even a recession.

The jobless claims report showed that for the week ending May 27, 10 states and territories reported increases in claims of more than 1,000, led by a rise of 8,811 in Michigan, an increase blamed on layoffs in the auto industry, and an increase of 3,271 in Texas, an increase blamed on layoffs in trade and manufacturing businesses.

Three states had declines in benefit claims of more than 1,000. The biggest drop was in Ohio, a fall of 5,335, followed by a decline of 3,080 in Pennsylvania and 1,201 in Puerto Rico, a territory where a partial government shutdown had pushed claims higher in recent weeks.

The state data is reported with a one-week lag from the national figures.