Factory, jobless data suggest economy is still struggling

Factory activity in Middle Atlantic States braked sharply in April and the number of Americans claiming new jobless benefits fell less than expected, implying the economy was struggling to regain momentum.

The reports came a week before government data is expected to show growth slowed significantly in the first quarter. The economy grew at a 2.0% annualized rate, according to a Reuters survey, after a 3.1% pace in the last three months of 2010.

“The economy certainly lost some steam through the first quarter, [but] the underlying health remains sound,” said Brian Levitt, an economist for OppenheimerFunds in New York. “It’s an economy that is likely to grow, but outsized growth is not on the horizon.”

The Philadelphia Federal Reserve Bank’s business activity index fell to 18.5 in April, pulling back from March’s 27-year high of 43.4 and far exceeding economists’ expectations for a drop to 37.

The index covers Pennsylvania, southern New Jersey and Delaware and is an early indicator of the health of U.S. manufacturing contained in a later national report.

Separately, the Labor Department said initial claims for state unemployment benefits fell 13,000 to a seasonally adjusted 403,000 last week, well above economists’ expectations for a decline to 392,000.

The slowdown in economic activity comes as some policymakers at the Federal Reserve are pushing for the central bank to start considering withdrawing some of the stimulus it has provided the economy.

The Fed’s policy-setting committee will meet April 26-27 to assess the economy and is expected to reaffirm a June end date for purchases of $600 billion of government bonds.