Signs of stability seen as U.S. jobless claims dip

An unexpected drop in new claims for U.S. jobless aid hinted that the country's battered labor market might be steadying, government data showed on Thursday, although employment conditions remain very weak.

Job-shedding by U.S. companies helped bolster worker productivity in the first quarter, according to a separate government report, as the number of hours worked shrank by the steepest annualized pace since 1975.

U.S. chemical maker DuPont Co on Thursday said it would eliminate a further 2,000 jobs under a cost-cutting plan to husband cash, but economists said that in general, the worst of the big corporate layoffs looks to be over.

The moderation in initial claims extends further, and is now well into the range where it appears likely that we have seen the peak of this business cycle, Goldman Sachs economists said in a note to clients.

Higher same-store sales among 31 U.S. retailers in April also indicated consumer confidence was rebuilding as people's fear of losing their jobs abated.

Initial claims for state unemployment insurance benefits dropped to a seasonally adjusted 601,000 in the week ended May 2 from a revised 635,000 the prior week, the Labor Department said. It was the lowest reading since late January.

Analysts polled by Reuters had forecast 635,000 new claims versus a previously reported count of 631,000 the week before.

U.S. Treasury bond prices fell, helped by hopes of economic recovery, and the dollar and stock market eased, with the Dow Jones industrial average down 76 points at 8,436.

A deep U.S. recession has already cost over 5 million jobs since it began in late 2007 and analysts expect the government's employment report for April, due on Friday, will show that a further 595,000 jobs were lost last month.

But there have been some scattered indications that labor market conditions might be stabilizing, albeit at still very weak levels, alongside other glimpses of hope that the severity of the recession may be easing.

The four-week average of new jobless claims, a better gauge of underlying labor trends because it irons out week-to-week volatility, fell for the fourth week in a row to 623,500 from 638,250 the week before. This was the smallest reading since mid-February.

Economists expect the labor market will remain very depressed even when growth begins to pick up, and the weekly report emphasized conditions remain bleak for many Americans.

It's encouraging to see jobless claims numbers come down. There were fewer new claims than expected. It's starting to signal some stabilization in the labor markets, but claims are still very high, said Gary Thayer, senior economist with Wells Fargo Advisors in St. Louis, Missouri.

The number of people staying on the benefits roll after drawing an initial week of aid rose 56,000 to a record 6.35 million in the week ended April 25, the most recent week for which data is available. Analysts estimated so-called continued claims would be 6.36 million.

Separately, the Labor Department said U.S. worker productivity outside the farm sector grew at an annual rate of 0.8 percent in the first quarter, after the number of hours worked fell faster than output as firms cut back sharply on employment to protect profits.

Economists polled by Reuters expected non-farm productivity, which measures the hourly output per worker, to increase at a 0.6 percent pace, compared with a revised 0.6 percent drop the previous three months.

The Labor Department said worker hours shrank at a 9.0 percent rate in the first quarter, the sharpest pace of decline since a 12.0 percent drop in the first quarter of 1975.

Cuts in worker hours will help to shield corporate profits as employers hunker down and wait for an economic upturn that U.S. officials say will get under way later this year.

A crucial ingredient in the recovery will be stronger consumer spending and higher-than-expected same-store sales among U.S. retailers pointed in this direction.

Of the 31 retailers that reported April sales at stores open at least a year, 64 percent topped Wall Street estimates and a handful said they plan to report better first-quarter results than they had expected.