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US labor market stuck in low gear

/ Source: staff and news service reports

There was gloomy news about the labor market on Thursday and some not-so-gloomy news.

New claims for unemployment benefits fell less than expected last week, according to a government report that could add to fears the labor market recovery has taken a step back. All eyes will now focus on the crucial employment report coming Friday.

On the brighter side, other Labor Department data showed that gains in productivity slowed in the first quarter: so, companies are still squeezing more work out of their current employees, but if they want productivity to pick up again, they may need to hire more workers.

Despite that glimmer of hope, the drumbeat of evidence that the recovery is struggling continued. Aside from the labor market worries, there were signs that demand is dropping too. Factory orders fell in April and U.S. retailers reported limp May sales as higher food and gas prices muted shopping.

Retailers that missed analysts' estimates included Victoria's Secret owner Limited Brands Inc , Target Corp , Gap Inc and J.C. Penney Co Inc. Overall, sales at stores open at least a year rose 4.9 percent in May at the retailers tracked by Thomson Reuters data, below the 5.4 percent increase that Wall Street expected.

"Perhaps we will see some pent-up demand in June, but we are concerned that the consumer, particularly at the lower end, may simply have a fixed spending amount and may simply spend less as apparel prices rise," said Janney Capital Markets analyst Adrienne Tennant.

Initial claims for state unemployment benefits slipped 6,000 to a seasonally adjusted 422,000, the Labor Department said. The prior week's figure was revised up to 428,000. Economists polled by Reuters had forecast jobless claims dropping to 415,000 from a previously reported count of 424,000.

Worker productivity rose at an annual rate of 1.8 percent in the January-March quarter, the Labor Department said. That's a slight upward revision from the government's first estimate of 1.6 percent. But it is significantly lower than the 2.9 percent growth rate in the final three months of last year.

Unit labor costs rose at a 0.7 percent rate, down from an initial estimate of 1 percent growth.

Productivity is a measure of the amount of output per hour of work. A slowdown in productivity growth is bad for the economy if it persists for a long period. But it can be good in the short term when unemployment is high. It could mean companies are reaching the limits on how much extra output they can get from their existing work forces.

The claims report falls outside the survey period for the government's closely watched data on nonfarm payrolls for May.

The government is expected to report on Friday that employers added 150,000 jobs last month, according to a Reuters survey, after increasing payrolls by 244,000 in April.

"Jobless claims were not horrible, but it is still above 400k, which is certainly a negative. There is a lot of hesitancy ahead of tomorrow's nonfarm payrolls report. Every indication we have had so far points to a slightly softer labor market in the U.S.," said Camilla Sutton, chied currency strategist at Scotia Capital.

Initial claims have been volatile in recent weeks as supply chain disruptions from the March earthquake in Japan caused temporary motor vehicle plant closures.

Claims have also been distorted by bad weather in some parts of the country and problems smoothing the data for seasonal variations. A Labor Department official said there was nothing unusual in the state-level data.

The four-week moving average of new jobless claims, considered a better gauge of labor market trends, fell 14,000 to 425,500. Initial claims have now been perched above the 400,000 mark for eight weeks in a row. Analysts normally associate that level with steady job growth.

The number of people still receiving benefits under regular state programs after an initial week of aid slipped 1,000 to 3.71 million in the week ended May 21.

Economists had expected so-called continuing claims to dip to 3.67 million from a previously reported 3.69 million.

The jobless claims news came a day after a report from ADP Employer services showed private-sector payroll growth slowed sharply in May. Businesses added a meager 38,000 jobs last month, the payroll processor's survey said, the lowest growth level in eight months. Economists had been expecting much higher growth of around 175,000 jobs.

The number of people on emergency unemployment benefits rose 3,363 to 3.42 million in the week ended May 14, the latest week for which data is available. A total of 7.68 million people were claiming unemployment benefits during that period under all programs.

New orders received by factories declined in April, partly because of a sharp drop in demand for transportation goods, according to a Commerce Department report on Thursday.

Overall orders fell 1.2 percent to a seasonally adjusted $440.4 billion after an upwardly revised 3.8 percent rise in March. That was steeper than the 1 percent fall that Wall Street economists surveyed by Reuters had forecast for April and implied some weakness in the factory sector that had performed relatively well until recently and helped support economic recovery.