WRAPUP 3-U.S. jobless claims fall, manufacturing stumbles

* New unemployment claims near two-year lows

* Producer prices fall for third straight month in June

* Industrial production barely rises, manufacturing falls

* Factory activity slows sharply in two regions in July
(Recasts with details, updates markets, adds byline)

By Lucia Mutikani

WASHINGTON, July 15 (BestGrowthStock) – New U.S. claims for jobless
aid tumbled to a near two-year low last week, but a modest gain
in industrial output and a third monthly drop in wholesale
prices in June confirmed a slackening in the economy’s
recovery.

Other data on Thursday also implied the slowdown in
manufacturing extended into July, but analysts said there was
no evidence the economy was sliding back into recession.

“The numbers are consistent with a slowdown in the rate of
growth in the U.S. and the global economy, but not a double
dip,” said Nigel Gault, chief U.S. economist at IHS Global
Insight in Lexington, Massachusetts. “The evidence is not
saying we have lapsed; the factory indicators are still
pointing to growth.”

Initial claims for state unemployment benefits dropped
29,000 to 429,000 last week as seasonal layoffs at factories
eased, the Labor Department said. That was well below market
expectations for a fall to 450,000.

In a second report, the department said producer prices
fell 0.5 percent last month as gasoline prices fell and food
costs recorded their largest decline since April 2002.
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Graphic on jobless claims: http://link.reuters.com/nyb77m

Graphic on producer prices: http://link.reuters.com/qec77m
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Stripping out food and energy costs, prices edged up 0.1
percent, after increasing 0.2 percent in May.

The relatively good news on employment was overshadowed by
a Federal Reserve report showing industrial production rose 0.1
percent last month, braking sharply from May’s 1.3 percent
advance. Manufacturing output declined 0.4 percent, snapping a
three-month streak of gains.

That weakness probably persisted this month, with measures
of factory activity in New York state and the mid-Atlantic
region slowing sharply from June.

U.S. stocks (Read more about the stock market today. ) fell on the manufacturing data, while a
government bond rally pushed the yield on the two-year Treasury
note to an all-time low. The dollar fell broadly on Thursday,
with the greenback down 1 percent against a basket of major
currencies. (.DXY: )

WEAK DATA

Economic data ranging from retail sales to home sales have
weakened in recent months, prompting the Fed to trim its 2010
growth forecast at its last policy-setting meeting in June.
Many private economists have cut estimates for both the second
quarter and the full year.

“We are in this economic environment now where it’s one
step forward, one step back. We will skate along the bottom
with slow growth for a long time,” said Howard Simons, a
strategist at Bianco Research in Chicago.

The weak labor market, characterized by a 9.5 percent
unemployment rate, is holding back the economy’s recovery from
the most painful recession since the 1930s. Lack of income has
caused consumer spending to turn sluggish in recent months.

New claims for jobless benefits normally rise this time of
the year as manufacturers, including automakers, implement
annual shut downs.

However, General Motors is keeping the majority of its
plants open during the annual summer retooling shutdown to meet
demand for some models.

A Labor Department official said layoffs that are normally
scheduled for this time of the year did not appear to have
materialized. Last week, the four-week moving average of new
jobless claims, considered a better measure of underlying labor
market trends, fell 11,750 to 455,250.

Analysts expect claims for jobless benefits to trend higher
in coming weeks once the distortions from the seasonal factors
wore off.

A combination of weak energy prices, high unemployment and
ample spare industrial capacity are keeping inflation subdued.

Economists believe these factors, coupled with softening
domestic demand, should lead the Fed to keep overnight interest
rates near zero until the second half of next year.

Industrial capacity in use held steady at 74.1 percent, up
sharply from a year earlier but still 6.5 percentage points
below its average from 1972 to 2009, the Fed said.
(Additional reporting by Emily Kaiser; Editing by Neil
Stempleman)

WRAPUP 3-U.S. jobless claims fall, manufacturing stumbles