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September 4, 2003 Yahoo News By Tim Ahmann WASHINGTON (Reuters) - Fresh economic data released on Thursday suggests a quickening in the pace of the U.S. recovery, but a rise in applications for jobless benefits showed the economy is not yet firing on all cylinders. Initial claims for unemployment aid rose unexpectedly last week, climbing back above the 400,000 level economists view as dividing improvement from deterioration in the jobs market, a Labor Department (news - web sites) report showed. But other reports underscored the economy's brightening outlook. A private-sector group said the giant U.S. services sector grew rapidly last month, while government data showed orders for manufactured goods rose more than expected in July. While economists have been heartened by mounting signs the economy is gathering strength, a weak labor market continues to show the recovery is not yet out of the woods. "One week does not reverse a trend, but clearly we are not getting much below that magic 400,000 number and it suggests we will have to wait a bit longer for the job recovery to catch up with the rest of the economy's recovery," said Tim O'Neill, chief economist at BMO Financial Group in Toronto. Another Labor Department report threw light on why the economy has continued to shed jobs -- business productivity has been surging, allowing firms to boost output while reducing the number of hours worked. In a revision to figures released a month ago, the Labor Department said productivity grew at a 6.8 percent annual rate during the second quarter, well above the previously reported 5.7 percent clip and the strongest advance since the first quarter of last year. A number of Federal Reserve (news - web sites) officials said strong productivity growth and slack in the economy would more likely cause inflation to drift lower than move up sharply, even with the economy accelerating. Under such a scenario, they said, the Fed's policy-setting panel could hold interest rates at 45-year lows for some time. The Fed officials' comments and the weak reading on jobless claims fueled gains in the bond market, while major stock indexes rose modestly as investors weighed the mixed economic news amid bullish brokerage calls on computer chip stocks.
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DARKNESS AND LIGHT The claims report said first-time filings rose 15,000 to 413,000 in the week ending Aug. 30, defying predictions on Wall Street for a slight drop. The four-week moving average of initial claims, which smoothes week-to-week volatility to provide a clearer picture of underlying trends, also inched up, climbing 4,250 to 401,500 to break a string of four weeks below the key 400,000 level. "I think the unexpected jump by initial state jobless claims warns against extrapolating too much good news from recent improvements in economic activity," said John Lonski, chief economist at Moody's Investor Service in New York. "Until employment growth returns materially, consumer spending is at risk," he said. In another sign of the tough time the unemployed face finding jobs, the number of jobless workers still on benefit rolls after claiming an initial week of benefits climbed by 24,000 to 3.66 million in the week ending Aug. 23 -- the highest level since late June. In contrast, the Institute for Supply Management struck an upbeat note with a report that showed its August service-sector index remaining at the record high of 65.1 reached in July -- the highest since the survey's inception six years ago. "The service sector is rampaging ahead in the third quarter," said Ian Morris, chief economist at HSBC Securities. A reading above 50 denotes growth in the sector, which comprises about 80 percent of the U.S. economy. ISM's new orders index, a potential harbinger of future growth, edged up to 67.6 in August from 66.9 in July, while its employment measure inched up to 51.0 from 50.7. A Commerce Department (news - web sites) report on factory orders also buttressed widespread views the economy was gaining strength. It said orders for U.S. manufactured goods rose 1.6 percent in July to $329.4 billion, the highest level since May 2001.
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