U.S. jobless claims fall
December 6, 2001: 9:52 a.m. ET
Numbers higher than expected, but continued claims encouragingly fall.
NEW YORK (CNN/Money) - The number of people filing claims for unemployment benefits fell last week, the government said Thursday, while, even more encouragingly, the number of people out of work for more than a week also fell.|
The Labor Department said new claims for unemployment benefits fell to 475,000 in the week ended Dec. 1 from a revised 493,000 a week earlier. Wall Street economists surveyed by Briefing.com expected jobless claims of 460,000.
The number of continued claims, or jobless people looking for work for more than a week, fell to 3.64 million in the week ended Nov. 24, the latest week for which such data are available, from a revised 3.99 million the prior week.
It was the biggest drop in continued claims since January 1983, but it also followed a week in which continued claims rose to their highest level in about 19 years.
"[Continued claims] did take a big fall, but you have to keep in mind there was a huge run-up the prior week, so overall, continuing claims on a trend basis are still moving up, and I think they're still indicative of a deteriorating labor market," Joshua Feinman, chief economist at Deutsche Bank Asset Management, told CNNfn's Before Hours program.
U.S. stock prices were slightly higher in early trading, while U.S. Treasury bond prices fell.
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Separately, the Labor Department revised its reading of third-quarter productivity growth to 1.5 percent from an initial reading of 2.7 percent. Economists surveyed by Briefing.com expected productivity growth to be revised to 2.1 percent.
The Federal Reserve watches productivity, defined in this case as output per labor hour, as an indicator of inflation, since producers can keep their prices down if they produce goods at low cost. If inflation were a risk, it would reduce the Fed's freedom to cut interest rates as it sees fit to stimulate the economy.
Unfortunately, since productivity gains partially result from cutting labor hours, that could be bad news for the overall economy if it lowers consumer demand and saps the ability of companies to keep prices - and profits - stable.
"While good gains in productivity are economically favorable, it is not a good situation when this occurs because labor input is declining more rapidly than output," said Steven Wood, economist at FinancialOxygen.
In the third quarter, output in non-farm businesses fell 2.0 percent from the second quarter, while labor hours fell 3.4 percent. In the manufacturing sector, which has suffered the most during a prolonged slowdown in the overall economy, the gap was more pronounced, with output falling 5.0 percent and labor hours falling 7.4 percent.
In brighter news for manufacturing, the Commerce Department reported factory orders rose 7.1 percent in October after falling 6.5 percent in September. Economists surveyed by Briefing.com expected orders to rise 6.7 percent.
Much of that rise, however, was the result of big gains in orders for defense equipment, led by the government's award of a $200 billion contract to Lockheed Martin (LMT: up $0.46 to $46.45, Research, Estimates) for the Joint Strike Fighter aircraft program, and transportation, triggered by zero-percent financing incentives from automakers. Excluding defense goods, factory orders rose 3.3 percent. Excluding transportation, orders rose only 2.0 percent.
"The data are heavily distorted by a large military contract and the surge in vehicle sales," Wood said. "Once these have dissipated, orders and shipments will sag again."
Before the manufacturing sector can fully recover, it will need to get rid of a backlog of unsold goods left over after more than a year of sluggish spending by businesses. Once inventories are cleared out, production and hiring can increase.
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The Fed has cut its target for short-term interest rates a record-tying 10 times this year and is widely expected to do so again after its next policy meeting, scheduled for Dec. 11.
When the Fed cuts rates, it does so mostly to make the cost of borrowing easier and spur consumer spending. It also might be meant simply to boost consumer confidence, which has been critical in recent months, following the terrorist attacks of Sept. 11 and a rising unemployment rate that is expected to pass 6.0 percent next year.
Most economists think the United States is in a recession, and the National Bureau of Economic Research recently declared a recession began in March. Though many economists think the economy should start growing again early next year, the unemployment rate is a lagging indicator and will continue to rise even as the economy begins to recover.
The Labor Department is scheduled to report the November unemployment rate and job cuts Friday. Economists surveyed by Briefing.com expect the unemployment rate to rise to 5.6 percent from 5.4 percent in October and expect 201,000 job losses to follow 415,000 job losses in October.
Despite the relatively good news on continued claims for unemployment benefits, the four-week moving average of new claims, which smoothes out volatility in the weekly data, rose to 460,750 last week from a revised 455,000 the week before.
Congress is working on a way to stimulate the economy, and Democrats are pushing for relief for these unemployed workers, while Republicans have been inclined to give tax breaks to corporations to spur corporate spending, pointing out that sluggish corporate spending was hurting the economy even before Sept. 11. Any stimulus package from Congress will likely be a compromise of these two positions.