Jobless claims rise more than expected to 637,000

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(A.P.) – New jobless claims rose more than expected last week due partly to an increase in layoffs by the automobile industry, while the number of people continuing to receive unemployment benefits set a record for the 15th straight week

The Labor Department said Thursday the number of new claims rose to a seasonally adjusted 637,000, from a revised 605,000 the previous week. That’s above analysts’ expectations of 610,000.

The increase comes after initial claims dropped in four of the previous five weeks, which raised hopes that the wave of layoffs announced earlier this year has crested and that the recession was nearing a bottom.

A department analyst said most of the increase was due to auto layoffs. Economists estimate Chrysler LLC has laid off 27,000 workers in the wake of its April 30 bankruptcy filing. General Motors Corp. has said it will temporarily shut 13 factories beginning later this month through July, potentially affecting 25,000 workers.

Still, many economists expect the downward trend in jobless claims to return once the impact of the auto industry’s job cuts has passed.

Also Thursday, the department said wholesale prices climbed 0.3 percent last month, larger than the 0.1 percent gain economists had expected. The biggest jump in food costs in more than a year offset a second monthly decline in the price of energy products.

Even with the larger-than-expected gain last month, wholesale prices over the past year have fallen 3.7 percent, the biggest 12-month decline since 1950. While falling prices can raise fears about deflation, economists believe the efforts by the Federal Reserve to combat the recession will prevent a dangerous bout of falling prices.

In another sign of labor market weakness, the tally of people continuing to receive benefits increased to 6.56 million from 6.36 million, setting a record for the 15th straight week and worse than analysts expected. The continuing claims data lags initial claims by one week.

The large number of people on the jobless benefit rolls is a sign that unemployed workers are having difficulty finding new positions.

Economists are closely watching the health of the labor market. If layoffs continue at a rapid pace, consumers could cut back further on spending and prolong the recession.

New applications for jobless benefits have declined since reaching 674,000 in late March, the highest level in the current recession. But claims remain elevated. Weekly initial claims were 375,000 a year ago.

The four-week average of claims, which smooths out volatility, rose to 630,500, after falling for four straight weeks. Still, the average remains nearly 30,000 below its high in early April, a drop that economists at Goldman Sachs and JPMorgan Chase & Co. have said indicates that the economic downturn is bottoming out.

There have been other signs the pace of job cuts is moderating, though still brutal. Employers eliminated 539,000 jobs in April, the fewest in six months and below the average of 700,000 in the first quarter of this year.

Still, more than 5.7 million jobs have been lost since the recession began in December 2007. The jobless rate rose to 8.9 percent in April, the Labor Department said last week. Many economists expect unemployment to hit 10 percent by year’s end.

More job cuts have been announced recently. Steel giant ArcelorMittal said Wednesday it will eliminate nearly 1,000 positions at an Indiana steel plant in July, while DuPont said last week it will cut 2,000 jobs.

Among the states, Illinois reported the largest increase in initial claims, which it attributed to layoffs in the construction and manufacturing industries. The next biggest increases were in Kansas, Puerto Rico, Indiana and Ohio.

New York reported the largest drop in claims of 13,386, which it said was due to fewer layoffs in the transportation and service industries. The next largest drops were in Michigan, North Carolina, Massachusetts and Connecticut. The state data is for the week ending May 2, one week behind the initial claims data.