The number of Americans filing new claims for unemployment benefits fell last week to one of its lowest levels since before the 2007-09 recession, a sign of increasing health in the labour market. Other data on Thursday showed a rise in business inventories during May, bolstering expectations the economy was bouncing back from a weak first quarter.
Initial claims for state unemployment benefits dropped by 11,000 to a seasonally adjusted 304,000 for the week ended July 5, the Labour Department said. Economists had expected no change in the number of first-time applications for jobless aid. The readings had little impact on financial markets, as US stocks and government debt yields fell over concerns about Italy's economy and the health of Portugal's top-listed bank.
Employers slashed their payrolls during America's deep recession, but the long cycle of aggressive layoffs now appears over. The four-week moving average for new claims, considered a better measure of underlying labour market conditions as it irons out week-to-week volatility, declined by 3,500 to 311,500 last week. That was the second-lowest reading for the moving average since August 2007. After falling steadily for several years, the moving average has been largely unchanged since the spring.
The labour market is still not fully healed. Firms have been more reticent about hiring, although companies added 288,000 jobs to their payrolls in June and the unemployment rate fell to 6.1 percent, closing in on a six-year low. "The labour market is firming up," said Stephen Stanley, an economist at Pierpont Securities in Stamford, Connecticut. Stanley cautioned against reading too deeply into last week's claims data because many factories shut down for parts of July to retool, often making claims data during the month volatile.
The Labour Department said there were no special factors influencing the state level data. Separately, the Commerce Department said wholesale inventories rose 0.5 percent in May, just below economists' expectations for a 0.6 percent increase. The gains were driven by increases in inventories of metals, autos, machinery and lumber. Inventories are a key component of gross domestic product changes. The component that goes into the calculation of GDP - wholesale stocks excluding autos - increased 0.3 percent in May.
A sharp slowdown in the pace of restocking by businesses helped to sink economic growth in the first quarter, but a swing in inventories is expected in the April-June period. The economy contracted at a 2.9 percent annual pace in the January-March period, with inventories playing a big role in the decline. Many analysts forecast growth in the second quarter to rebound to at least a 3 percent pace.
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