US unemployment rises as firms lose faith in recovery
Fearful businesses reluctant to put more people on payroll
Published 13/08/2010 | 05:00
New claims for jobless benefits continued to climb last week, rising to the highest level in six months as the US labour market's struggles persist.
Initial jobless claims rose by 2,000 to 484,000, Labour Department figures showed yesterday. Economists expected new claims to shrink at the beginning of August, but a sluggish recovery has kept companies cautious about hiring.
There is rising concern that companies may be losing confidence in the recovery and are hesitant to hire, raising the risk of further erosion in consumer spending, the biggest part of the economy.
Federal Reserve policy makers this week said growth "is likely to be more modest" than they previously projected, prompting central bankers to take additional steps to spur a rebound.
"There's still considerable uncertainty about the economic outlook," said David Resler, chief economist at Nomura Securities International in New York. "Businesses are simply reluctant to put people on payrolls and are more willing to let them go. This week's increase was more disappointing than what we've seen in recent weeks."
Stocks dropped as the report added to evidence that the world's largest economy was slowing. The Standard & Poor's 500 Index fell 0.8pc to 1,080.5.
Prices of goods imported into the US rose in July for the first time in three months, led by higher fuel costs, another Labour Department report showed.
The 0.2pc increase in the import-price index was smaller than projected and followed a 1.3pc June drop. Prices excluding energy fell 0.3pc.
There were no special factors influencing last week's data, a Labour Department spokesman told reporters as the figures were being released.
The four-week moving average of claims climbed to 473,500 from 459,250, yesterday's report showed.
The number of people continuing to collect unemployment benefits fell by 118,000 to 4.45 million in the week ended July 31, from 4.57 million the prior week.
The number of Americans who've used up traditional benefits and are now collecting emergency and extended payments soared by 1.34 million to 5.28 million in the week ended July 24. That was the week legislation resuming eligibility went into effect.
While companies have added workers to their payrolls for seven straight months, firings have remained elevated as the economic recovery shows signs of slowing. Private firms added 71,000 jobs in July, fewer than economists had forecast.
Congress this week passed legislation providing $26bn (€20bn) in aid to state governments that is designed to prevent thousands of layoffs of teachers and other public service employees.
Every state except Vermont is required to balance its budget, forcing spending cuts, tax increases or both -- actions Fed chairman Ben Bernanke said last week are contributing to the nation's sluggish recovery.
The Fed has held its benchmark interest rate at a record low and announced it will reinvest principal payments on mortgage holdings into long-term treasury securities, an effort to bolster growth.