Reports Suggest U.S. Slowdown May Be Worsening
Fresh signs of weakness Thursday triggered new concerns that the economy is getting worse instead of better.
The number of U.S. workers filing new claims for state unemployment benefits rose last week to the highest level in more than five years, while a separate report showed a surge in job cuts by companies in April.
Also, a private industry group said the services sector of the economy contracted in April, suggesting that what had been a manufacturing-centered slowdown is spreading.
The data may foreshadow a bigger-than-expected rise in the April unemployment rate, which the government will report this morning.
“I think that we are going to see more bad news on the economic front than good news probably over most of the summer,” said David Resler, chief economist with Nomura Securities International in New York. “I don’t see [a catalyst for] quickly turning things around.”
The news sent stocks broadly lower, while Treasury bond yields fell on hopes that the data will prod the Federal Reserve to cut interest rates more sharply in the months ahead.
Initial jobless-benefits claims rose by 9,000 to a level of 421,000 in the week ended April 28, the Labor Department said. That was the highest since 428,000 in the week ended March 23, 1996.
The less-volatile four-week average of claims rose to the highest since October 1992.
The government also said the total number of people receiving jobless benefits rose by 38,000 to a five-year high of 2.682 million in the week ended April 21.
As layoffs pile up, more workers are seeking government help. Businesses last month outlined plans to eliminate 165,564 jobs, according to Challenger, Gray & Christmas Inc., a job-placement firm in Chicago that tracks layoff notices.
The April total broke the previous record of 162,867 set in March and was the largest for any month since the firm began to tally announcements in 1993.
“The labor market continues to weaken,” said Ryan Brecht, an economist at Standard & Poor’s MMS in Belmont, Calif. “If you have continued erosion in the labor market, that could affect consumers’ willingness to spend. The risk is that the unemployment rate will rise through the second quarter.”
While the manufacturing sector has borne the brunt of the economic slowdown, the National Assn. of Purchasing Management said Thursday that its non-manufacturing survey showed that the services sector, too, is contracting.
NAPM recorded the lowest reading on its monthly index of U.S. non-manufacturing activity since it launched the survey in July 1997. The index fell to 47.1 in April from 50.3 in March.
Any index reading below 50 means business is contracting rather than simply slowing.
Thursday’s reports followed the Fed’s survey of regional economic activity issued Wednesday. That survey said the economy overall grew at a “slow pace” in March and early April.
Other data recently had suggested that the economy was pulling out of the slowdown that began last fall.
The confusing signals mean that today’s April employment report from the Labor Department will take on even greater weight--especially with the Fed, which next meets on May 15.
Analysts in a Bloomberg News survey project that the jobless rate rose to 4.4% in April, the highest in two years, from 4.3% in March.
The economy probably added 20,000 jobs after losing 86,000 the month before, according to the survey.
A weaker-than-expected employment reading could trigger a deeper interest rate cut by the Fed at its next meeting, some analysts say. Many analysts already expect the Fed to cut its key short-term rate a half percentage point, to 4%, at the May 15 meeting.
The Fed has cut rates four times this year.
Treasury bond yields have been rising in recent weeks as investors bet on an economic rebound. But on Thursday yields pulled back moderately.
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Economy’s Victims
Initial claims for state jobless benefits have soared as the economy has slowed, and hit a five-year high of of 421,000 in the week ended April 28.
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New unemployment benefit claims, totals for the last week of each month, in thousands
Latest: 421,000
Source: Bloomberg News
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