WRAPUP 3-US jobless claims jump, cast a pall over job market

* Jobless claims up for first time in five weeks

* Leading indicator sees first dip in 13 months

* Mid-Atlantic region manufacturing expands in May
(Recasts with details, updates markets, adds byline)

By Lucia Mutikani

WASHINGTON, May 20 (BestGrowthStock) – New claims for state jobless
benefits unexpectedly rose last week for the first time since
early April, suggesting the U.S. labor market recovery may have
hit a speed bump.

While data on Thursday also showed manufacturing activity
rose in the nation’s mid-Atlantic region in May, new orders and
employment slipped, and a separate gauge of the economy’s
prospects dipped for the first time in 13 months in April.

The reports showed more weakness than financial markets
expected and contributed to a selloff on Wall Street, but
analysts said the economy’s recovery was largely on track.

“Uneven growth across sectors is not uncommon as an economy
seeks to gain momentum,” said Lindsey Piegza, an economist at
FTN Financial in New York.

Initial claims for state jobless benefits increased 25,000
last week to 471,000, the highest level in five weeks, the
Labor Department said. Markets had expected a drop to 440,000.

The claims data fell in the survey week for the
government’s closely watched employment report for May, and
would normally be seen as suggesting weak jobs growth.

However, some analysts said the relationship between claims
and payrolls had weakened, and they continued to look for a
healthy pace of job creation in May.

“There hasn’t been a particularly close relationship, we
still expect employment growth to be fairly brisk in May. But
there is a bit of a downside risk given the number this
morning,” said Peter Newland, an economist at Barclays Capital
in New York.

Separately, the Philadelphia Federal Reserve Bank said its
index of mid-Atlantic business activity rose to 21.4 from
April’s 20.2, a touch below market expectations for 22.0. A
reading above zero indicates expansion in manufacturing.

Subindexes, however, showed weakness in employment and new
orders.

In a third report, the Conference Board said its index of
U.S. leading economic indicators, which aims to gauge the
economy’s future strength, slipped 0.1 percent last month,
surprising analysts who had looked for a 0.2 percent gain.

It was the first drop since March 2009.

STOCKS TUMBLE

The reports added to pressure on U.S. stocks (Read more about the stock market today. ), already
reeling on concerns Europe’s debt crisis could put a damper on
the U.S. economic recovery. The Standard & Poor’s 500 index
(.SPX: ) slipped further into negative territory for the year.

Prices for U.S. government debt rallied, tapping a
safe-haven bid, and the yield on the benchmark 10-year note
(US10YT=RR: ) touched a 5-1/2 month low. The U.S. dollar dropped
to session lows versus the euro and the yen.

Federal Reserve Governor Daniel Tarullo warned Europe’s
debt troubles, if not contained, could cause financial markets
to freeze and spark a global crisis akin to the market meltdown
of late 2008. [ID:nN20148593]

The debt crisis, stemming from Greece’s fiscal troubles,
pushed consumer confidence in the euro zone to a seven-month
low in May. Still, analysts remain optimistic the crisis will
have a minimal impact on the U.S. economy as it recovers from
its longest and deepest recession since the 1930s.

They worry, however, that a sustained decline in share
prices could curb consumer spending, which rebounded strongly
in the first quarter. Retailers such as Staples Inc (SPLS.O: )
remain cautious on health of the consumer.

“There are worries that the market turmoil will eventually
trigger some weakness in the economic performance, but to date
I don’t really see that. What we are seeing in the data is
pretty steady decent rates of growth,” said Stephen Gallagher,
chief U.S. economist at Societe Generale in New York.

The Fed’s quarterly “central tendency” forecasts released
on Wednesday showed greater optimism on the U.S. growth outlook
among policymakers, who predicted gross domestic product would
rise around 3.2 percent to 3.7 percent this year.

But the manufacturing-led recovery has been plagued by
stubbornly high unemployment, creating a political headache for
President Barack Obama and his fellow Democrats. The near 10
percent unemployment rate could cost the Democratic Party its
majorities in both houses of Congress in November’s elections.

New applications for unemployment benefits have been
falling only slowly, even though payrolls have now grown for
four straight months. Analysts believe this implies only a
gradual improvement in the jobless rate once it peaks.

Last week, the four-week moving average of new jobless
claims, which is seen as a better indicator of underlying
trends, rose 3,000 to 453,500.

But there was some good news in the claims report. The
number of people still receiving benefits after an initial week
of aid fell to its lowest level in since late March in the week
ended May 8. And for the first time since November 2009, the
number of people receiving benefits fell below 10 million.

“The ongoing reduction in the total number of benefit
recipients is consistent with continued hiring,” wrote
economists at Goldman Sachs.
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For a graphic on U.S. jobless claims click on the link:
New claims for jobless benefits rise for the first time since
early April
http://link.reuters.com/taj45k
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Stock Market Trading

(Additional reporting by Pedro Nicolaci da Costa and Burton
Frierson; Editing by Neil Stempleman)

WRAPUP 3-US jobless claims jump, cast a pall over job market