Jobless claims fuel fear of slowing US recovery

By James Politi in Washington

Published: July 1 2010 14:24 | Last updated: July 1 2010 15:38 - Financial Times

Fears that the US recovery is losing steam were reinforced on Thursday, as new data on the health of the labour market, as well as the manufacturing and housing sectors, disappointed economists.

The number of people seeking jobless claims in the US rose unexpectedly last week by 13,000 to 472,000, while the less volatile four-week moving average also rose slightly to 466,500, offering further evidence that the improvements in the labour market seen earlier this year may be slowing.

In March and April, the recovery in labour market conditions appeared to be gaining traction, amid solid job creation in the private sector. But in May, private employers seemed to put hiring plans on hold, bringing only 41,000 new positions onto their payrolls.

David Semmens, US economist at Standard Chartered Bank, said that today’s jobless claims figures were “a timely reminder that firings in the US remain elevated and appetite from employers for hirings remains anemic”.

Meanwhile, growth in the US manufacturing sector, which has been one of the bright spots of the US recovery, appears to be slowing. The Institute for Supply Management’s manufacturing index fell from 59.7 in May to 56.2 in June, a much larger drop than predicted by economists. Although any reading above 50 indicates an expansion in manufacturing activity, this is now the second consecutive monthly drop in the index. Some of the components of the survey were also discouraging, with the employment gauge and the new orders gauge dropping.

No solace for observers of the US economy came from data on the troubled housing market. The National Association of Realtors reported that pending home sales, a measure of activity in home purchases that have been agreed but not completed, tumbled by 30 per cent in May, much worse than the 12.5 per cent drop predicted by economists. A decline was widely predicted because of the expiry in April of the homebuyer tax credit, which shifted demand for housing to early spring, but the extent of the so-called “payback” in both pending home sales and new home sales has brought renewed fears of a housing double-dip.

“If you’re looking for a silver lining in housing, you aren’t going to find it here. Demand has fallen off a cliff in the wake of the tax credit expiration, “ said Mike Larson, interest rate and real estate analyst at Weiss Research. “With so many Americans unemployed or underemployed, the housing market is going to keep hurting”.

The next big data release on the US economy occurs on Friday, when the labor department publishes its monthly jobs report for June. Economists are expecting that payrolls overall will decline because of layoffs associated with the 2010 census, but that private businesses will grow by about 100,000.