New claims for US unemployment benefits fall

Figures suggest employers not laying off staff in response to tighter fiscal policy

The number of Americans filing new claims for unemployment benefits fell more than expected last week, pointing to resilience in the labour market despite belt-tightening by Washington.

Still, other data today suggested the federal austerity drive was combining with weak overseas demand to hold US factory activity in May to its weakest rate of growth in seven months.

Initial claims for state unemployment benefits dropped more than expected last week, falling 23,000 to 340,000, the US labour department said.

The drop unwound most of the prior week’s jump, suggesting employers were not laying off workers in response to tighter fiscal policy, especially the $85 billion in across-the-board government spending cuts that have dampened factory activity.


Last week’s claims data covered the survey period for the government’s report on nonfarm payrolls for May. Claims dropped 15,000 between the April and May survey periods, suggesting steady gains in employment this month. Employers added 165,000 jobs to their payrolls in April.

"The recently lower initial claims readings have continued to suggest improvement on the layoff side of the labour market equation and should prove marginally positive for the May nonfarm payroll report" said Gennadiy Goldberg, US strategist at TD Securities in New York.

The four-week moving average for new claims, which irons out week-to-week volatility, slipped 500 to 339,500.

The labour market is being closely watched by the US Federal Reserve as debate heats up over the future of its expansive monetary stimulus. Yesterday, Fed chairman Ben Bernanke told politicians that a decision to scale back the $85 billion in bonds the US central bank is buying each month could come at one of its "next few meetings" if the economy appeared set to maintain momentum.

Economic activity appears to have cooled somewhat early in the second quarter on the back of tighter fiscal policy, but the slowdown could prove to be temporary as the steady job gains combine with rising share and home prices to support consumer spending.

In May, US manufacturing slowed for a second straight month as weak overseas demand and government belt-tightening at home led to the sector’s most sluggish rate of growth since October.

Financial data firm Markit said its "flash," or preliminary, US Manufacturing Purchasing Managers Index fell to a seven-month low of 51.9 in May from 52.1 the previous month. A reading above 50 indicates expansion.

The output subindex slipped to 52.8 from 53.7. The pace of hiring slipped to 52.2 from 53.2, the slowest since October.