Spending surges, but jobless claims rise

WASHINGTON - First-time claims for jobless benefits increased more than expected last week, a sign employers are reluctant to hire and the job market remains weak.

And even though consumer spending jumped by the most in nearly eight years in August, due partly to the government's Cash for Clunkers program, economists question whether the improvement can be sustained. They note that households face rising unemployment, tight credit conditions and other obstacles.

The Labor Department said Thursday that initial claims for unemployment insurance rose to a seasonally adjusted 551,000 from 534,000 in the previous week. Wall Street economists had expected an increase to 535,000, according to a survey by Thomson Reuters.

Spending surges, jobless claims jump Oct. 1: U.S. consumer spending rose at its fastest pace in nearly 8 years in August. Separately, a report from the Labor Department showed initial claims for state unemployment insurance rose more than expected. A CNBC panel breaks down today's data. CNBC

The increase comes after three weeks of declines. Weekly claims have been trending down since the spring, but the decline has been painfully slow. The four-week average, which smoothes out fluctuations, dropped to 548,000, about 110,000 below its peak in early April.

"This is a bit disappointing but not unduly alarming," Ian Shepherdson, chief U.S. economist for High Frequency Economics, wrote in a note to clients. The increase "leaves the downward trend in claims intact."

Economists closely watch initial claims, which are considered a gauge of layoffs and an indication of companies' willingness to hire new workers. Many economists say initial claims below 400,000 would be a signal that employers are adding to the net total of jobs.

Separately, a private trade group said Thursday that manufacturing activity expanded for the second straight month in September, but at a slightly slower pace than in August.

The Institute for Supply Management's index of manufacturing activity was 52.6, down from 52.9 in August. Economists expected a reading of 54. Figures above 50 indicate the sector is expanding.

Major stock indicators fell more than 1 percent in morning trading after the disappointing manufacturing and jobs reports.

The Dow Jones industrial average fell about 125 points.

The number of people remaining on the rolls, meanwhile, fell 70,000 to 6.09 million, the lowest level since the week of April 4.

The claims data come a day before the September unemployment report due Friday. Economists forecast that report will show the unemployment rate rose to 9.8 percent from 9.7 percent in August. Most economists expect the rate to top 10 percent by early next year.

Employers are expected to have cut 180,000 jobs in September, down from 216,000 in August.

Continuing claims have declined slowly from a record level of 6.9 million in late June, "suggesting that the unemployment rate is near its peak," Abiel Reinhart, an economist at JPMorgan Chase, wrote in a note to clients.

But when federal emergency programs are included, the total number of jobless benefit recipients was nearly 9 million in the week that ended Sept. 12. That's little changed from the previous week. Congress has added up to 53 extra weeks of benefits on top of the 26 typically provided by the states. The House last week approved legislation adding another 13 weeks of benefits, and the Senate could pass a similar measure Thursday.

The large number of people remaining on the rolls indicates that unemployed workers are having a hard time finding new jobs.

Consumer spending, which accounts for 70 percent of total economic activity, jumped in August by the largest amount in nearly eight years even though personal incomes continued to lag.

The Commerce Department said Thursday that consumer spending rose 1.3 percent in August, even better than the 1.1 percent gain that had been expected. But incomes edged up 0.2 percent, the same as in July.

The surge in consumer spending is a strong signal that the economy was returning to growth this summer. But any rebound from the recession could falter if income growth does not improve, economists said.

Meanwhile, construction spending rose 0.8 percent in August, much better than the 0.2 percent drop that economists had expected. It reflected a 4.7 percent rise in private residential activity, the biggest one-month increase since November 1993. Spending on other projects dropped in August.

The recession, which began in December 2007 and is the worst since the 1930s, has eliminated a net total of 6.9 million jobs.

Most analysts expect the economy grew by about 3 percent in the July-September quarter, technically ending the recession. But Federal Reserve Chairman Ben Bernanke said last month that growth isn't expected to be strong enough to reduce the jobless rate for some time.

More job cuts were announced this week. Telecom services provider Windstream Corp., based in Little Rock, Ark., said it will eliminate 350 jobs by the end of the year.

Among the states, California had the largest increase in claims, with 5,112, which it attributed to layoffs in the construction, transportation and agriculture industries. Texas, Florida, Iowa and Illinois had the next largest increases. State data lag the initial claims figures by one week.

Kansas had the largest drop in claims, with 1,545. Wisconsin, Oregon, Ohio and New York had the next largest declines.