New jobless claims rise in sign of weak job market

New unemployment claims rise unexpectedly; more than a million have lost federal benefits

WASHINGTON (AP) -- Initial claims for unemployment benefits rose last week for the second time in three weeks. At the same time, more than a million people have lost benefits and more could be cut off now that Congress has failed to extend federal jobless aid.

New claims for benefits jumped by 13,000 to a seasonally adjusted 472,000, the Labor Department said Thursday The four-week average, which smooths fluctuations, rose to 466,500, its highest level since March.

Claims have remained stuck above 450,000 since the beginning of the year. That has heightened concerns among economists that jobs remain scarce even as the economy has begun to recover from the worst recession since the 1930s.

"We find the level and direction in jobless claims somewhat troubling and the increase is likely to feed double-dip fears," said John Ryding, an economist at RDQ Economics in a note to clients.

The economy received more bad news on Thursday when two reports showed the housing industry is struggling now that government tax credits for homebuyers have expired.

Still, the biggest problem for the recovery remains the number of people who are unemployed. Adding to that is the growing number of people who stand to lose government support while they search for work.

More than 1.3 million laid-off workers won't get their unemployment benefits reinstated before lawmakers go on a weeklong vacation for Independence Day. The numbers could reach 3.3 million by the end of this month if they don't pass the extension, the Labor Department said.

For the third time in as many weeks, Senate Republicans blocked a bill Wednesday night that would have continued unemployment checks to people who have been laid off for long stretches. The House is slated to vote on a similar measure Thursday, though the Senate's action renders the vote a futile gesture as Congress prepares to depart Washington for its holiday recess.

During the recession, Congress added up to 73 weeks of extra benefits on top of the 26 weeks typically provided by states. Democrats in the House and Senate want them extended through November. Republicans want the $34 billion cost of the bill to be paid for with money remaining from last year's stimulus package. Democrats argue that it is emergency spending and should be added to the deficit.

Some economists say they may revise their forecasts for growth in the third quarter if the benefits are not extended.

"People whose benefits are going to run out will simply not have the spending power necessary to help drive growth," said Dan Greenhaus, chief economic strategist at Miller Tabak.

The housing market is also weighing on the economy. The number of buyers who signed contracts to purchase homes tumbled 30 percent in May, the National Association of Realtors said. And construction spending declined 0.2 percent in May as residential building fell, the Commerce Department said.

Both were affected by the expiration of government incentives to buy homes. Buyers had until April 30 to sign sales contracts and qualify for tax credits.

The tax credit's impact also showed up in the jobless claims report. Greater layoffs by construction firms fueled the increase, a Labor Department analyst said.

Separately, the Institute for Supply Management, an industry trade group, said its manufacturing index slipped in June. But it was still at a level that suggests growth in the industrial sector, which has helped drive the economic recovery.

Requests for unemployment benefits dropped steadily last year after reaching a peak of 651,000 in March 2009. Economists say they will feel more confident the economy about sustained job growth when initial claims fall below 425,000

The figures come a day before the Labor Department is scheduled to release the June jobs report. That is expected to show a modest rebound in private-sector hiring. Overall, employers are expected to cut a net total of 110,000 positions, but that includes the loss of about 240,000 temporary census jobs. Private employers are projected to add 112,000 jobs, according to a survey of economists by Thomson Reuters.

That would be an improvement from May, when businesses added only 41,000 workers. But the economy needs to generate at least 100,000 net new jobs per month to keep up with population growth, and probably twice that number to bring down the jobless rate.

The unemployment rate is expected to edge up to 9.8 percent from 9.7 percent in May.

Layoffs are rising in the public sector, as states and local governments struggle to close persistent budget gaps. New York City approved a budget Tuesday that cuts about $1 billion in spending and would eliminate 5,300 jobs from the city's 300,000-person work force.

The total number of people continuing to claim benefits rose by 43,000 to 4.6 million, the department said. But the number of people collecting extended benefits fell by 376,000, as Republican lawmakers have refused to continue the extra aid. About 4.9 million people continue to collect emergency aid.

Associated Press Writer Stephen Ohlemacher contributed to this report.

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