WRAPUP 4-U.S. jobless claims drop, offer hope for recovery

* New jobless claims fall to lowest level in two months

* Continuing claims lowest in seven months

* Retail sales up 3.1 pct in June from year ago
(Updates markets to close)

By Lucia Mutikani

WASHINGTON, July 8 (BestGrowthStock) – New U.S. claims for jobless
benefits fell last week to their lowest level in two months,
offering cautious hope for an economic recovery that had shown
signs of fatigue.

The bigger-than-expected decline in jobless claims on
Thursday was a relief after a slew of weak reports had left
investors fearing the economy could slip back into recession.

“Talk of a double-dip may be a little premature. Investors
jumped on the double-dip bandwagon, but we don’t really see
it,” said Alan Lancz, president at Alan B. Lancz & Associates
in Toledo, Ohio.

Even so, unemployment remains painfully high and other data
on Thursday showed that consumers continue to struggle.
Retailers resorted to discounting to keep sales aloft in June,
and the Federal Reserve reported that U.S. consumer credit
dropped more than expected in May.

Initial claims for state unemployment benefits dropped
21,000 to 454,000 last week, and the number of people
continuing to receive benefits in the final week of June was
the lowest in seven months, the Labor Department said.

Economists had expected first-time claims to decline to
just 460,000.

The Federal Reserve said U.S. consumer credit dropped by
$9.15 billion in May, the 15th decline in the last 16 months.
[ID:nWAL8IE6CD]

With signs that consumers were growing stingier with their
hard-earned dollars, U.S. retailers stepped-up promotions last
month to spur sales.

Sales at stores open at least a year — a benchmark of
retail performance, — rose 3.1 percent in June from a year
earlier, just shy of the 3.2 percent increase that Wall Street
predicted, according to reports on Thursday from 28 retailers
tracked by Thomson Reuters. [ID:nN07207305]

The data reassured investors the economy was still growing
following the longest and deepest recession since the 1930s.
The promotional trend that drove much of the gains in June
sales was seen likely to continue into July.

The reports drove U.S. stocks (Read more about the stock market today. ) to their third straight day
of gains, while prices for safe-haven U.S. government debt
fell. The U.S. dollar rose against the yen.

Concerns over the recovery were also calmed after the
International Monetary Fund upgraded its forecast for U.S.
economic growth. The IMF, however, warned about the impact of
high unemployment and a distressed housing market, and it
acknowledged that data had turned weaker in recent weeks.

“The outlook has improved in tandem with recovery, but
remaining household and financial balance sheet weaknesses —
along with elevated unemployment — are likely to continue to
restrain private spending,” the fund said. [ID:nN08210088]

JOBS LAG RECOVERY

Job growth has lagged the U.S. recovery, which started in
the second half of 2009, putting pressure on President Obama
and his fellow Democrats. The sluggish economy could cost the
Democratic Party control of Congress in November elections.

Speaking at an electric vehicle plant in Kansas City,
Missouri, Obama said the economy was moving toward recovery,
but warned of more “hard days” ahead.

“What is absolutely clear is that we are headed in the
right direction — and that the surest way out of these storms
we’ve been in is to keep moving forward, not back,” he said.

Although layoffs have abated after last year’s
bloodletting, companies are skeptical of the economy’s strength
and are reluctant to start hiring workers on a wider scale.

Some economists said a decision by General Motors to limit
the number of plants it is shutting down as part of its annual
summer retooling may have helped lower claims for jobless
benefits last week.

However, a Labor Department official said there was nothing
unusual in the report, and other analysts said they expect to
see more of an impact in coming weeks.

The number of people still receiving jobless benefits
during the final week of June after an initial week of aid
dropped 224,000 to 4.41 million, the lowest level since
November.

That pulled down the insured unemployment rate, which
measures the percentage of the insured labor force that is
jobless, to 3.4 percent from 3.6 percent the prior week.

With Congress wrangling over extending aid for the
long-term unemployed, the number of people on emergency
benefits dropped 367,948 to 4.15 million in the week ended June
19. About 45 percent of the 14.6 million people unemployed in
June had been out of work for six months and more.

Analysts worry that if benefits are not extended, consumer
spending could be hurt.
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U.S. jobless claims graphic:
http://link.reuters.com/taf56m

Insider video for IMF report on US economy:

http://link.reuters.com/jux36m

Same-store sales graphic: http://link.reuters.com/qys55m

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(Additional reporting by David Lawder and Alister Bull in
Washington)

WRAPUP 4-U.S. jobless claims drop, offer hope for recovery