New U.S. claims for unemployment benefits fell last week, but not enough to assuage fears the labor market recovery has taken a step back.

Initial claims for state unemployment benefits slipped 6,000 to a seasonally adjusted 422,000, the Labor Department said on Thursday, less than economists' expectations for a fall to 415,000.

The small decline in claims fits in with other data ranging from consumer spending to manufacturing, indicating the economy has adopted a decisively weak tone at a time when the Federal Reserve is scheduled to wrap up its $600 billion government bond-buying program at the end of the month.

While independent economists and officials at the U.S. central bank continue to view the soft-patch as transitory, concerns of a protracted slowdown are growing.

The claims report falls outside the survey period for the government's closely watched data on nonfarm payrolls for May.

The government is expected to report on Friday that employers hired 150,000 last month, according to a Reuters survey, after increasing payrolls by 244,000 in April.

Every indication we have had so far points to a slightly softer labor market in the U.S., said Camilla Sutton, chief currency strategist at Scotia Capital in Toronto.

Stocks on Wall Street were mixed in choppy trade after a report that the government had subpoenaed Goldman Sachs received a subpoena regarding its role in the housing market collapse.

U.S. government debt prices were down, while the dollar fell against a basket of currencies.

LABOR COSTS MUTED

There is a risk that May payrolls could come in below consensus after ADP, a payroll service company, reported private employers added only 38,000 last month, the smallest number since September.

However ADP has a poor track record at predicting nonfarm payrolls.

In a second report, the Labor Department said nonfarm productivity grew at a slightly faster 1.8 percent annual rate in the first quarter, rather than the 1.6 percent previously reported. Productivity was still slower than the 2.9 percent pace set in the fourth quarter.

Wage growth remained muted, with unit labor costs rising at a 0.7 percent rate rather than the previously estimated 1 percent rate. Unit labor costs dropped at a 2.8 percent rate in the fourth quarter.

We expect that over the next year the growth in productivity will slow even more, as businesses have reached the limits of how much more they can squeeze out of their existing work force, said Nariman Behravesh, chief economist at IHS Global Insight in Lexington, Massachusetts.

This is good news for employment growth, which is likely to continue over the course of the next few quarters, albeit at a moderate pace.

Weakness in the economy was further underscored a report from the Commerce Department showing new orders received by U.S. factories fell 1.2 percent in April after rising 3.8 percent in March.

Although the recovery might be faltering, the bar is very high for an extension of the Fed's asset-buying program and there is little or no political will for fiscal stimulus amid a ballooning budget deficit and high headline inflation.

Officials at the U.S. central bank generally regard the soft patch that started early in the year, because of high commodity prices and supply chain disruptions, as temporary.

High food and gasoline prices cut into sales at major U.S. retailers in May, with retailers such as Target Corp, Gap Inc and J.C. Penney Co Inc reporting sales that were below analysts' expectations.

Overall, sales at stores open at least a year rose 4.9 percent in May at the retailers tracked by Thomson Reuters data, below the 5.4 percent increase that Wall Street expected.

While the labor market improvement has slowed, a host of temporary factors have been at play. Initial claims have been volatile in recent weeks as supply chain disruptions from the March earthquake in Japan caused temporary motor vehicle plant closures.

Claims have also been distorted by bad weather in some parts of the country and problems smoothing the data for seasonal variations.

A Labor Department official said there was nothing unusual in the state-level data, but noted that Missouri had indicated that floods were affecting claims in the state, but provided insufficient information to quantify the impact.

The four-week moving average of new jobless claims, considered a better gauge of labor market trends, fell 14,000 to 425,500.

Initial claims have now been perched above the 400,000 mark for eight weeks in a row. Analysts normally associate that level with steady job growth.

(Additional reporting by Glenn Somerville; Editing by Neil Stempleman)

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