WRAPUP 5-US jobless claims at 9-month high, outlook darker

* New jobless claims rise 12,000, highest in 9 months

* Mid-Atlantic factory activity falls, at 13-month low

* Leading indicator rises 0.1 pct, points to slow growth
(Updates markets to close)

By Lucia Mutikani

WASHINGTON, Aug 19 (BestGrowthStock) – The frail U.S. economy
received fresh setbacks as new U.S. jobless claims scaled a
nine-month high last week and Mid-Atlantic manufacturing shrank
in August for the first time in more than a year.

Other data released on Thursday, including a lackluster
gain in a gauge of future activity last month, also implied
that expansion had lost momentum after a brisk first quarter,
though economists cautioned against interpreting the reports as
signs of an impending double-dip recession.

“It is certainly disheartening news about the economy,”
said David Resler, chief economist at Nomura Securities
International in New York.

“It is not persuasive evidence that we have dipped into
recession again but it’s certainly suggestive of a more serious
deterioration than we had factored into our forecasts.”

Financial markets were rattled by the data and investors
sold stocks in favor of safe-haven government debt.

Initial claims for state unemployment benefits increased
12,000 to a seasonally adjusted 500,000 last week, the highest
since mid-November, the Labor Department said, and the third
straight week of gains — a trend last seen in January.

Financial markets had expected claims to slip to 476,000.

Separately, the Philadelphia Federal Reserve Bank said its
business activity index dropped to minus 7.7, the lowest since
July 2009, as new orders and shipments fell and the employment
situation deteriorated. For more see [ID:nN19254823].

The index was at 5.1 in July and August’s fall confounded
markets that had expected a rise to 7.0. It also raised the
risk of contraction in overall national manufacturing activity,
which has been leading the economy’s recovery from its most
painful recession since the Great Depression of the 1930s.

A reading below zero indicates a shrinking in the region’s
manufacturing and the index was last negative in July last year
when activity was recovering from the 2008-2009 downturn.

SLOWER GROWTH CONTINUES

Stocks on Wall Street tumbled and the broader Standard &
Poor’s 500 index (.SPX: ) suffered its lowest close in nearly a
month.

U.S. government debt prices rallied, with the yield on the
two-year Treasury note (US2YT=RR: ) falling to a record low. Bond
yields move inversely to prices. The U.S. dollar fell to a near
15-year low against the yen (JPY=: ) but rose against the euro
(EUR=: ).

The latest data, including a third report showing the
Conference Board’s index of leading economic indicators rose
0.1 percent in July after dropping 0.3 percent in June,
reinforced signs of sluggish third-quarter growth.

The economy’s poor health, characterized by a 9.5 percent
unemployment rate, has handed President Barack Obama a tough
challenge and put at risk the Democratic Party’s majorities in
the U.S. House of Representatives and Senate in November’s
congressional elections.

Obama on Thursday cited the weak data as he implored the
Senate to pass a stalled bill to help small businesses, which
have been hit hard by tight access to credit. [ID:nN19263865]

“They need help and if we want this economy to create more
jobs more quickly we need to help them,” Obama said.

As the soft economic data piles up, some analysts also
worry the domestic slowdown that started in the second quarter
risks pushing the global economy close to renewed recession.

“If the (U.S.) economy is going down, there’s no way the
euro zone can withstand the slowdown,” said Win Thin, senior
currency strategist at Brown Brothers Harriman in New York.

The claims report covered the survey week for the
government’s closely watched August unemployment report and
analysts said it implied payroll losses could exceed July’s
131,000 decline.

POOR OUTLOOK

The burdens facing the economy were further underlined by a
report from the nonpartisan Congressional Budget Office, which
forecast the national budget deficit would hit $1.342 trillion
this year, a touch below the $1.368 trillion it forecast in
March. [ID:nN19192752]

There were other mixed measures of economic activity from
major retailers on Thursday, with Sears Holdings Corp (SHLD.O: )
reporting a wider-than-expected quarterly loss as consumers
curbed spending.

But office products company Staples Inc (SPLS.O: ) reported a
higher quarterly profit, meeting expectations, and said it
expects modest economic recovery during the rest of the year.

Ryan Sweet, a senior economist at Moody’s Economy.com in
West Chester, Pennsylvania, said the latest rise in jobless
claims could “pressure the Federal Reserve to put its
contingency plan into motion.”

The Fed — the U.S. central bank, which has kept benchmark
interest rates near zero, has said it stands ready to act
should the economic picture deteriorate.

Even more disturbing in the claims report, the four-week
average of new jobless claims, considered a better measure of
underlying labor market trends, rose to its highest since early
December.

Claims for unemployment benefits have been stuck at lofty
levels for much of this year. Payrolls grew in the first five
months, partly due to hiring for the decennial census, but have
declined in both June and July.

“There hasn’t been any real improvement in the labor
market. It seems companies are in a holding pattern when it
comes to hiring and that has created a stagnant job market,”
said Stephen Bronars, senior economist at Welch Consulting in
Washington.

“It’s not clear what it’s going to take to turn the
corner.”

The economy grew at a 2.4 percent annual rate in the second
quarter, much slower than the 3.7 percent pace in the first
three months of the year, but recent data suggest the growth
rate may be revised down.
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Graphic on jobless claims: http://link.reuters.com/zek95n
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(Additional reporting by Lisa Lambert in Washington and Leah
Schnurr and Chris Reese in New York; Editing by James
Dalgleish)

WRAPUP 5-US jobless claims at 9-month high, outlook darker