Originally created 03/07/03

Jobless claims rise sharply last week, partly reflecting toll of bad weather



WASHINGTON -- New claims for unemployment benefits rose last week to their highest level of the year, partly reflecting the toll of snow storms that ravaged the East Coast, another setback for an already struggling job market.

The Labor Department reported Thursday that initial applications for unemployment insurance went up last week by a seasonally adjusted 12,000 to 430,000. It marked the third week in a row that layoffs increased and represented a weaker work climate than analysts were expecting. They were predicting claims would go down.

In a second report from the department, workers who managed to keep their jobs were more productive in the final three months of 2002 than the government previously thought.

Productivity - the amount of output per hour of work - rose at an annual rate of 0.8 percent in the fourth quarter, according to revised figures. That marked a turnaround from the 0.2 percent rate of decline reported a month ago and was a stronger showing than analysts were predicting.

Economists were predicting an improvement in productivity during the fourth quarter because the economy didn't falter as much during that period as previously estimated. Last week, the government reported that the economy grew at a 1.4 percent rate in the final three months of 2002. That was twice as fast as first estimated.

A third report from the Commerce Department showed that orders to U.S. factories rose 2.1 percent in January, the best showing in six months, and up from a 0.3 percent increase in December.

January's better-than-expected performance was led by a hefty, 14.6 percent gain in orders for automobiles, the largest increase since August 1998, and an improvement from the 12.4 percent drop recorded in December.

While the report provided a dose of good news, more forward-looking data on manufacturing released earlier in the week showed that this sector of the economy lost ground in February. And, top U.S. auto makers, concerned that generous incentives and favorable financing deals won't bolster demand, said they would pare production.

The nation's largest retailers, meanwhile, reported disappointing sales for February as winter storms and war worries gave consumers more reasons not to shop. Apparel retailers and department stores were hardest hit.

It was not clear the extent to which the increase in new claims for jobless benefits was related to the bad weather, which would have hampered work in areas such as construction. Layoffs were worse in the mid-Atlantic states, where the storm hit the hardest. Nor was it clear how much of the rise in new applications for benefits was directly attributable to the struggling economy.

Businesses, however, worried about a possible war with Iraq, weak profits and a generally uncertain business outlook have been keeping their work forces lean and have been reluctant to make big commitments to capital spending, key forces restraining the economy's ability to get back to full health.

The more stable four-week moving average of initial claims, which smooths out weekly fluctuations, also rose sharply last week to 408,750, the highest level in more than two months.

The nation's unemployment rate dipped to 5.7 percent in January. But economists are predicting it rose to 5.8 percent in February, as companies slow the pace of hirings. Analysts are forecasting the economy added only around 20,000 during the month, down from the 143,000 jobs created in January. The government will release the employment report for February on Friday.

In the productivity report, even with the upward revision, the fourth-quarter's performance represented a slowdown from the brisk 5.5 percent growth rate registered in the third quarter of 2002. The fourth-quarter slowdown in productivity stems from the fact that the economy, which grew at a 4 percent pace in the third quarter, lost momentum in the fourth quarter.

Still, Federal Reserve Chairman Alan Greenspan has said such quarterly fluctuations in productivity are expected and that he is bullish about the long-term prospects of productivity growth.

For all of 2002, productivity grew by 4.8 percent, the strongest showing since 1950.

Gains in productivity are a crucial ingredient to the economy's long-term vitality. Healthy productivity increases allow the economy to grow faster without triggering inflation. Businesses are able to pay workers more without raising prices, which would eat up those wage gains.