Unemployment Applications Fall to 395K

August 4: Job seeker during a Career Job Fair in Arlington, Va. (AP)

The number of people who filed for U.S. unemployment benefits fell 7,000 to 395,000 in the week ended Aug. 6, the Labor Department said Thursday.

Economists surveyed by MarketWatch had expected jobless claims to increase to 410,000 from an initially reported 400,000 in the prior week. Applications had been above 400,000 for the previous 17 weeks.

The four-week average fell to 405,000, its sixth straight decline. That suggests applications are decreasing over time. But any number above about 350,000 suggests that more workers are looking for jobs than there are jobs to be had.

The economy added 117,000 net jobs in July, the government said last week. That was an improvement from the previous two months. But it's far below the average of 215,000 jobs per month that companies created from February through April.

Many employers pulled back on hiring after signs emerged that the economy had weakened from last year. High gas prices and scant wage gains left consumers with less money to spend on discretionary purchases, such as appliances, furniture and electronics. Supply chain disruptions caused by the Japan crisis also dampened U.S. factory production.

The economy expanded at an annual rate of just 0.8 percent in the first six months of the year, the slowest growth in the two years since the recession officially ended.
It's not likely to get much better in the second half of the year. The Federal Reserve on Tuesday said it expects growth will stay weak for two more years. The Fed also acknowledged that the economy's problems go beyond temporary factors, such as high gas prices.

As a result, the Fed said it would likely keep the short-term interest rate near zero at least through mid-2013.

Economists have slashed their growth estimates. Goldman Sachs Group Inc. expects just 2.5 percent growth in the July-September quarter, down from its previous estimate of 3.25 percent. JPMorgan Chase & Co. reduced its estimate to 1.5 percent, down from as high as 3 percent several weeks ago.

Growth of about 2.5 percent is barely enough to reduce the unemployment rate. The economy needs to grow by 5 percent for a whole year to bring down the rate by one percentage point.

Fears that the U.S. economy could be at risk of falling back into a recession, along with concerns that Europe is struggling to control its debt crisis, have roiled markets in recent weeks. The Dow Jones industrial average has fallen nearly 12 percent so far this month.

Many analysts worry that market turmoil could spook investors and consumers, causing them to take fewer risks and cut back on spending. That would hurt economic growth, making the markets' jitters a self-fulfilling prophecy.

News Core and The Associated Press contributed to this report.