The number of newly laid-off workers requesting unemployment insurance dropped slightly last week after spiking due to auto layoffs, while continuing jobless claims moved closer to 7 million.
While other signs have pointed to the overall economy picking up later this year, including a private research group on Thursday saying its index of leading indicators grew in April for the first time in seven months, the labor market likely will remain weak into 2010 and beyond.
The Labor Department said Thursday that initial claims for jobless benefits fell to a seasonally adjusted 631,000, down from a revised figure of 643,000 the previous week. That nearly matched analysts' expectations of 630,000 new claims.
Many economists said that while layoffs probably are still declining, they may not be doing so as fast as had been hoped.
In addition, factory shutdowns by Chrysler LLC and General Motors Corp. likely will continue to inflate the claims figures until this summer, economists said.
"We expect that the auto shutdowns will be lifting claims for the next couple of months," said Dean Maki, an economist at Barclays Capital.
Claims jumped two weeks ago as Chrysler shut its factories after filing for bankruptcy protection April 30, putting up to 27,000 hourly employees out of work. In addition, GM is temporarily closing 13 factories on a rolling basis over the next two months, a move economists estimate could affect 25,000 workers.
Joseph Lavorgna, chief U.S. economist at Deutsche Bank, thinks the auto shutdowns could temporarily push claims to as high as 700,000, though few other economists are as bearish.
The number of people continuing to claim unemployment insurance rose to nearly 6.7 million from about 6.6 million, the department said. That's the highest total on records dating to 1967 and the 16th straight record. The continuing claims data lags initial claims by one week.
The financial markets reacted negatively to the news, as the Dow Jones industrial average dropped about 145 points in morning trading. Broader indices also fell.
While the pace of layoffs may slow, hiring remains weak and the unemployment rate will keep rising. Based on Thursday's data, Abiel Reinhart, an economist at JPMorgan Chase, predicts it could rise to 9.2 percent in May, from 8.9 percent in April.
The four-week average of new claims, which smoothes fluctuations, dipped to 628,500, from 632,000, the department said.
Separately, a private research's group forecast of economic activity rose more than expected in April, the first gain in seven months.
The Conference Board says its index of leading economic indicators, designed to forecast economic activity in the next three to six months, rose 1 percent last month. Economists surveyed by Thomson Reuters expected a 0.8 percent increase.
Jobless claims had reached a 14-week low of 605,000 earlier this month, from 674,000 in late March, the peak for the current recession. Many economists had seen the drop as a sign that layoffs were easing and the economy could be nearing a bottom.
The Federal Reserve, meanwhile, expects the economy will start to grow again later this year, according to documents released Wednesday. But Fed officials expect the unemployment rate, currently at 8.9 percent, could rise to 9.6 percent this year and remain elevated until 2011.
Some private economists expect the rate to reach 10 percent by the end of this year.
More job cuts have been announced this week. American Express Co. said it will cut about 4,000 jobs, while Medtronic Inc. said it would eliminate up to 1,800 positions and Hewlett-Packard Co. said it would cut 6,400 jobs.
Among the states, Michigan had the largest increase in claims for the week ending May 9. Claims there rose by 16,817, which it attributed to layoffs in the auto industry. The next largest increases were in North Carolina, Virginia, Kentucky and Pennsylvania.
California reported the largest decrease in claims of 10,052, which it said was due to fewer layoffs in the service industry. The next largest decreases were in Wisconsin, Kansas, Oklahoma and Washington.