WRAPUP 3-US jobless claims up, productivity caps inflation

* Initial jobless benefit claims rise 20,000 last week

* Productivity gains 1.9 pct in the third quarter

* Unit labor costs slip 0.1 pct in third quarter
(Updates market to close)

By Lucia Mutikani

WASHINGTON, Nov 4 (BestGrowthStock) – New U.S. claims for jobless
aid rose last week and a strong rebound in productivity in the
third quarter showed employers wringing more output from
current workers rather than hiring.

U.S. business productivity rose at a stronger-than-expected
1.9 percent annual rate, the Labor Department said on
Thursday, leading to a surprise dip in unit labor costs, a
closely watched gauge of inflation pressure.

The data came a day after the Federal Reserve launched a
program to buy an additional $600 billion worth of government
bonds out of concern over lofty unemployment and the risk
slowing inflation could lead to a downward price spiral that
could shackle the economy.

“The big picture is that firms are trying to squeeze every
ounce out of the workers they have and this is one reason they
feel no need to hire,” said Cary Leahey, an economist at
Decision Economics in New York.

The government’s closely watched monthly employment report,
to be released on Friday, is expected to show anemic jobs
growth in October.

Initial claims for state unemployment benefits increased
20,000 last week to a seasonally adjusted 457,000, reversing
the prior week’s decline, the department said in a separate
report. Economists had expected claims to come in at 443,000.

The report on productivity showed unit labor costs, a gauge
of how much it costs for the labor to produce any given unit of
output, fell at a 0.1 percent rate in the third quarter after
rising 1.3 percent in the second quarter. Economists had
expected the measure to rise at a 0.7 percent rate.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

For a graphic on U.S. weekly jobless claims, click on:

http://r.reuters.com/zec83q

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

The data suggested little improvement in the stagnant U.S.
labor market and continued downward pressure on inflation.

The Fed on Wednesday expressed disappointment in the
economy’s performance and launched a second round of asset
purchases to push interest rates further down to lift demand
and prevent deflation.

MORE MONEY INTO THE ECONOMY

U.S. financial markets ignored the data as traders
continued to digest the Fed’s decision. Stocks on Wall Street
extended a rally that started in September to close at two-year
highs, while the dollar skidded to a more than nine-month low
against the euro.

Prices for medium-term U.S. government bonds rose. The U.S.
central bank will concentrate its new purchases in mid-range
maturities.

The Fed bought about $1.7 trillion in U.S. government debt
and mortgage-linked bonds during a first round of so-called
quantitative easing after it had cut overnight interest rates
to near zero in December 2008.

Despite the stimulus, the economy has failed to rebound
strongly from its worst recession since the Great Depression,
leaving the unemployment rate perched at 9.6 percent. The
claims data has little influence on a report on employment for
October due on Friday as it falls outside the survey period.

The government is expected to report that nonfarm payrolls
increased 60,000 last month, which would be the first expansion
since May, after dropping 95,000 in September. Private-sector
hiring, however, is expected to remain relatively tepid.

Americans angry over joblessness handed control of the
House of Representatives to the Republican Party in elections
on Tuesday that were viewed as a vote on President Barack
Obama’s economic policies.

But the rise in productivity in the third quarter, which
exceeded economists expectations for a 1.0 percent growth pace,
offered hope that at some point firms will no longer be able to
meet demand by making their operations more efficient and will
need to increase payrolls.

“We are likely to see firms pick up hiring to meet higher
demand because the easy productivity gains have already been
wrung out of the economy,” said Troy Davig, a senior U.S.
economist at Barclays Capital in New York.

The stronger-than-expected productivity performance should
help support corporate profits, but they could take a hit once
productivity slows, Davig said.

Better-than-expected sales results from U.S. retailers on
Thursday suggested some momentum heading into the crucial
holiday selling season. [ID:nN04122512]

It was the latest in a number of very recent signs that
economic activity could be firming slightly.

But cash-flush company do not appear to be in a hurry to
boost their payrolls just yet.

A survey by the National Federation of Independent Business
published on Thursday showed that 10 percent of member firms
increased average employment by 4.5 employees in October, down
from 13 percent in September.

Over the next three months, 13 percent said they would
reduce employment and only eight percent said they would create
new jobs. [ID:nN04206142]
(Additional reporting by Glenn Somerville in Washington and
Ellen Freilich in New York; Editing by Andrea Ricci)

WRAPUP 3-US jobless claims up, productivity caps inflation