Initial Jobless Claims Increase

Further signs emerged Thursday suggesting a quickening in the pace of the U.S. recovery, but a rise in applications for unemployment benefits showed that the economy is not yet firing on all cylinders.

Initial claims for unemployment assistance rose unexpectedly last week, climbing above the 400,000 level that economists view as dividing improvement from deterioration in the job market, a report from the Labor Department showed.

But other reports underscored the economy’s brightening outlook. A private-sector group said the giant U.S. services sector grew rapidly last month, and government data showed that orders for manufactured goods rose more than expected in July.

“One week does not reverse a trend, but clearly we are not getting much below that magic 400,000 number, and it suggests we will have to wait a bit longer for the job recovery to catch up with the rest of the economy’s recovery,” said Tim O’Neill, chief economist at BMO Financial Group in Toronto.

A separate Labor Department report threw light on why the economy has continued to shed jobs: A surge in business productivity in the second quarter allowed firms to boost output while reducing the number of hours worked.

In a revision to figures released a month ago, the Labor Department said the productivity of U.S. businesses grew at a 6.8% annual rate during the second quarter, well above the previously reported 5.7% clip and the strongest advance since the first quarter of last year.

The unemployment claims report said first-time filings rose by 15,000 to 413,000 in the week ended Aug. 30, defying predictions on Wall Street of a slight drop.

The four-week moving average of initial claims, which smooths week-to-week volatility to provide a clearer picture of underlying trends, also inched up, climbing 4,250 to 401,500 to break a string of four weeks below the key 400,000 level.

“I think the unexpected jump [in] initial state jobless claims warns against extrapolating too much good news from recent improvements in economic activity,” said John Lonski, chief economist at Moody’s Investors Service in New York.

“Until employment growth returns materially, consumer spending is at risk,” he said.

In another sign of the tough time the unemployed face finding jobs, the number of jobless workers still on benefit rolls after claiming an initial week of aid climbed by 24,000 to 3.66 million in the week ended Aug. 23, the highest level since late June.

In contrast, the Institute for Supply Management struck an upbeat note with a report that showed its August service-sector index remaining at the record high of 65.1 reached in July, the highest since the survey’s inception six years ago.

A reading above 50 denotes growth in the sector, which comprises about 80% of the economy.

A report on factory orders from the Commerce Department also buttressed widespread views that the economy was gaining strength. It said orders for U.S. manufactured goods rose 1.6% in July to $329.4 billion, the highest level since May 2001.