WRAPUP 4-U.S. jobless claims fall, but still elevated

* New jobless claims fall 31,000 last week

* Four-week average of claims rises 3,250 to 9-month high

* Continuing claims fall 62,000, emergency benefits rise

(Adds IMF comments, updates markets to close)

By Lucia Mutikani

WASHINGTON, Aug 26 (BestGrowthStock) – New U.S. jobless claims fell
more than expected last week but were too high to signal a
shift in a weak labor market that is constraining economic
growth.

The data from the Labor Department on Thursday, coming on
the heels of reports this week showing a slump in housing and
soft demand for long-lasting manufactured goods, was a relief
amid escalating fears the economy is slipping back into
recession.

“It’s good to see a sizable decrease in initial claims, but
the labor market remains impaired,” said Robert Dye, a senior
economist at PNC Financial Services in Pittsburgh. “We are not
seeing the type of job gains that we need to generate a
self-sustaining economic expansion.”

Initial claims for state unemployment benefits fell 31,000
to a seasonally adjusted 473,000 last week, better than market
expectations for a drop to 490,000.

The report will be of little comfort for President Barack
Obama and his fellow Democrats ahead of a tough mid-term
election in November. Obama is falling out of favor with
Americans frustrated with a 9.5 percent unemployment rate and
the Democratic Party could lose its control of Congress.

Investors shrugged off the report and U.S. stocks (Read more about the stock market today. ) ended
down, with the blue chip Dow Jones industrial average (.DJI: )
closing below the 10,000-point threshold for the first time
since July 6. Prices for safe-haven U.S. government debt rose.

Stubbornly high unemployment is the Achilles heel of the
economy’s recovery from its worst recession since the 1930s.
The economy at first rebounded strongly, fueled by a $862
billion government stimulus and businesses rebuilding
inventories from record low levels.

But with the boost from the stimulus fading, growth has
slowed and the government on Friday is expected to revise
second-quarter gross domestic product growth lower to an annual
pace of 1.4 percent from 2.4 percent.

POLITICAL COST

The economy’s poor health has become the campaign issue for
the November vote and could hurt the Democratic Party’s chances
of fighting off Republicans, who are expected to make electoral
gains that could alter the balance of power in Congress.

A Reuters/Ipsos poll this week found 72 percent of
respondents were very worried about joblessness, while Obama’s
approval rating, at 45 percent, was overtaken for the first
time by a 52 percent disapproval rating.

Paul Sracic, chairman of political science at Youngstown
State University in Ohio, said, “Democrats are running out of
time” to score any political benefit even if economic
conditions were to improve soon.

Although most economists do not believe the economy is
slipping back into recession, they say a quarter of contraction
in output could not be ruled out. The tide of weak data so far
for July has prompted some economists to lower their growth
forecasts for the third quarter.

The International Monetary Fund said the softer data
pointed to a more subdued recovery.

“Qualitatively we had expected a subdued recovery for some
time. Broadly speaking the recent data are in line with this
picture,” IMF spokesman Gerry Rice told reporters.

The softening economic outlook is set to dominate Friday’s
gathering of central bankers from around the globe. Federal
Reserve Chairman Ben Bernanke is likely to signal his views
about the uncertain prospects for domestic economy but probably
will not offer many clues on whether the U.S. central bank will
pump more cash to keep the recovery going. [ID:nN25199098]

Claims for unemployment benefits have hovered above the
400,000 to 450,000 range many analysts say is associated with
sustained jobs growth and this implies unemployment will remain
stubbornly high well into 2011.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Graphic on jobless claims: http://link.reuters.com/nan47n
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

Last week, the four-week average of new claims —
considered a better measure of underlying labor market trends
— rose 3,250 to 486,750, the highest since late November. It
was considerable higher than the average for July and
economists said it implied more job losses in August.

“If you take the signal from the claims data, they
definitely do suggest that the August employment report should
be weaker than July,” said Julia Coronado, a senior economist
at BNP Paribas in New York.

“We expect private payrolls will decline by 10,000 and
total nonfarm payrolls will decline by 160,000.”

Payrolls fell by 131,000 last month. Economists reckon
claims are being kept elevated by the layoffs related to
temporary workers for the decennial census, cut backs in
residential construction after the end of a popular homebuyer
tax credit and tight budgets at state and local governments.

The claims report also showed the number of people still
receiving benefits after an initial week of aid fell 62,000 to
4.46 million in the week ended Aug. 14.

So-called continuing claims covered the survey period for
August’s employment report, expected to show the jobless rate
ticking up to 9.6 percent. The number of people on emergency
benefits increased 199,493 to 4.90 million in the week ended
Aug. 7.

Separately, the number of U.S. homes headed for foreclosure
fell in the second quarter for the first time since the housing
slump began in 2006, but improvements may be fleeting as the
number of newly delinquent homeowners rose, the Mortgage
Bankers Association said. [ID:nNLLPJE6DT]
(Additional reporting by Richard Cowan and Lesley Wroughton;
Editing by Eric Walsh)

WRAPUP 4-U.S. jobless claims fall, but still elevated