New Jobless Claims Hit Five-Week High

WASHINGTON – The number of American workers filing new claims for jobless benefits climbed to a five-week high last week as companies coped with an economy that is struggling to get back on firm footing.

The Labor Department (search) reported Thursday that new applications for unemployment insurance rose by a seasonally adjusted 16,000 to 442,000 for the work week ending May 31. The increase pushed claims to their highest level since the week ending April 26.

Last week's rise surprised economists, who were predicting claims would fall to 421,000.

Some of last week's sharp increase in claims probably reflected seasonal adjustment difficulties related to the Memorial Day holiday, a Labor Department analyst said.

Even so, for 16 straight weeks new claims have been running above the 400,000 mark — a level associated with a largely stagnant job market (search), economists say.

The more stable, four-week moving average of new claims, which smooths out week-to-week fluctuations, rose last week by 3,000 to 430,500, the highest level in two weeks.

The nation's jobless rate jumped to 6 percent in April as businesses cut 48,000 jobs. The economy has lost a half million jobs in the last three months, a decline usually associated with recessions.

Economists predict the unemployment rate rose to 6.1 percent for May and that another 30,000 jobs were eliminated during the month. The employment report for May is released by the government on Friday.

Even if the economy improves in the second half of this year, as economists hope, the jobless rate is expected to move higher — to around 6.3 percent to 6.5 percent later this year.

Job growth probably won't be strong enough to accommodate all the additional job seekers who would enter the market, attracted by an improved climate, economists say. That would contribute to a rise in the unemployment rate.

Federal Reserve (search) Chairman Alan Greenspan (search) has called recent reports on the nation's employment situation weak.

The sluggish job market so far hasn't caused consumers — the main force keeping the economy going — to shut their pocketbooks and wallets. But they are being more selective. Low interest rates, a refinancing boom that has left people with extra cash and solid home values are some of the factors offsetting the negative forces of the sluggish job market.

Federal Reserve policy-makers have left a key short-term interest rate at a 41-year low of 1.25 percent since November. Greenspan and his colleagues have said that rates are low enough to support economic activity, but they also have left the door open to rate reductions down the road.

Economists say the odds are growing that the Fed will lower short-term rates at its next meeting June 24-25.

That view is largely based on Greenspan's recent concerns about the remote possibility that the country could face a destabilizing fall in prices, called deflation, amid the lackluster economic environment. A rate reduction would be aimed at helping to ward off even the threat of deflation cropping up, economists say.

The economy grew at a tepid 1.9 percent rate in the first three months of this year. Economists say the economy needs to crank up growth to a rate of around 3 percent and higher before companies will feel inclined to really step up hiring.

Cautious companies, wanting their profits to heal more, have been wary of making big investments in capital spending and in hiring, major forces restraining the economy.