Jobless Claims at Highest Level Since End of May

More American workers signed up for unemployment benefits last week, fresh evidence that businesses are keeping work forces lean and playing it safe until the economy shows clear signs of improvement.

The Labor Department (search) reported Thursday that for the work week ending July 5, new claims filed for unemployment insurance rose by a seasonally adjusted 5,000 to 439,000, the highest level since the week ending May 31.

The increase surprised economists who were forecasting a decline in jobless claims.

For 21 weeks in a row, the level of claims has been above the 400,000 mark, a level associated with a sluggish job market.

The more stable-four week moving average of claims, which smooths out weekly fluctuations, edged up by 1,000 to 426,750 last week, representing the highest level since June 21.

The number of out-of-work Americans continuing to draw jobless benefits jumped by 87,000 to 3.8 million for the work week ending June 28, the most recent period for which that information is available. That represented the highest level since Feb. 26, 1983, and suggested that not a lot of hiring is taking place.

Last week the government reported that the nation's unemployment rate climbed to 6.4 percent in June, a nine-year high, raising new questions about whether the economy would stage a material revival in the second half of this year as many economists hope.

Businesses, wanting profits to improve and facing lackluster customer demand, have been reluctant to crank up capital spending and hiring, the main factors hampering the economy's ability to get back to full economic speed.

To help nudge the economic recovery along, the Federal Reserve (search) cut a key short-term interest rate on June 25 by one-quarter percentage point to 1 percent, a 45-year low. The hope is that lower borrowing costs will motivate consumers and businesses to boost spending and investment, which would strengthen economic growth.

Many economists believe the Fed will leave rates at that low level through the rest of the year, unless the economy were to take an unexpected turn for the worse. Under that remote scenario, another rate cut would probably be ordered by the Fed, analysts say.

While last week's disappointing unemployment news may have dimmed some economists' calls for a second half rebound, it didn't derail such forecasts.

With a fresh round of federal tax cuts now beginning to kick in, some economists are still hopeful that the economy will see stronger growth rates in the current quarter and the fourth quarter of this year. Those economists are forecasting economic growth in the second half of this year in the range of a 3.5 percent to 4 percent rate.

Economists say that the economy, which grew at a tepid 1.4 percent in the first three months of this year, needs to shift into a higher rate of at least 3 percent for companies to really begin to step up hiring.