U.S. data hints at slowdown in job creation

The number of Americans filing for jobless aid rose to an eight-month high last week and productivity growth slowed in the first quarter, clouding the outlook for an economy that is struggling to gain speed.

While the surprise jump in initial claims for unemployment benefits was blamed on factors ranging from spring break layoffs to the introduction of an emergency benefits program, economists said it corroborated reports this week indicating a loss of momentum in job creation.

New claims for state jobless benefits rose 43,000 to 474,000, the highest since mid-August, the Labor Department said on Thursday. Economists had expected claims to fall.

One factor that likely helped push claims up and that could prove lingering were auto layoffs brought about by supply disruptions from Japan's earthquake and tsunami.

A second report showed nonfarm productivity increased at a 1.6 percent annual rate in the first three months of the year, braking from a 2.9 percent pace in the fourth quarter.

We do not think that the entire rise in claims over the last month can be explained by special factors alone, said Harm Bandholz, chief U.S. economist at UniCredit Research in New York. It seems instead as if the improvement in the labor market slowed a bit.

The data was the latest to suggest a softening in the jobs market. Other reports this week showed weaker employment growth in the manufacturing and services sectors in April, and a step back in private hiring.

ECONOMIC GROWTH SLOWS IN FIRST QUARTER

Boosting employment is critical to reinvigorating a recovery weighed down by high food and energy pries. Growth slowed to a 1.8 percent annual rate in the first quarter after a 3.1 percent expansion in the final three months of 2010.

Economist anticipate a pick-up in growth but the prediction could be in jeopardy if the stream of weak data persists.

The data is not consistent with the type of growth numbers that are anticipated for the economy over the balance of the year, said Steven Ricchiuto, chief economist at Mizuho Securities in New York.

The claims data fell outside the survey period for the government's employment report for April, which will be released on Friday and is expected to show the jobless rate holding at a two-year low of 8.8 percent.

A Reuters survey found economists looking for an increase of 186,000 in nonfarm payrolls, which rose by 216,000 in March -- the most in 10 months.

But the odds are high for an even lower number. An industry survey released on Thursday found hiring by U.S. small businesses almost ground to a halt in April.

SPECIAL FACTORS BLAMED

U.S. stocks fell on the claims report, while government debt prices rose for a sixth straight session. The dollar gained against the euro after the European Central Bank offered few clues on the timing of the future interest rate increases.

Reports from retailers showed a late Easter boosted sales of clothing and other holiday-related items in April, but stores warned rising costs and a weak labor market would dampen purchases over the next several months.

A Labor Department official said spring break layoffs in New York added about 25,000 to the jobless benefit rolls last week. He said the start of an emergency benefits program in Oregon also helped lift the number of claims.

Many states in the Northeast allow for non-teaching staff to file for unemployment benefits when schools close for spring and summer breaks. The department tries to adjust its figures to take into account these seasonal fluctuations but New York's spring break occurred at an unusual time this year.

Tornadoes that struck parts of the country could also have accounted for a small number of claims.

We are hesitant to take too strong of a signal from the recent increase in claims data and will look to upcoming reports before suggesting that the upturn in claims is a sign that the labor market has lost momentum, said Michael Gapen, a senior economist at Barclays Capital in New York.

The slowdown in productivity in the first quarter reflected the softening in growth, but also suggested businesses may soon need to step up hiring.

It's not unusual at this stage of the cycle to see productivity slowing. We're seeing hiring, it's not very rapid, but companies cannot squeeze more out of their workers anymore, said Yelena Shulyatyeva, an economist at BNP Paribas in New York.

The data showed a slight gain in wage-related price pressures, which nevertheless were muted. Unit labor costs, which gauge the cost of labor for any given unit of output, rose at a 1 percent rate after dropping 1 percent in the fourth quarter.

(Editing by Neil Stempleman)