CHICAGO (Reuters) - The number of Americans lining up for jobless benefits tumbled in the latest week, a decline seen as distorted by upheaval in the auto industry, while a key regional factory index slipped in July, reports showed on Thursday.
At the same time, U.S. home foreclosures raced to a record high in the first half of 2009, swamping efforts by the White House to remedy the spate of failing loans.
The day’s reports highlighted the frailty of the U.S. economy at a time many forecasters see the nation poised to climb out of a deep recession that started in December 2007.
The Philadelphia Federal Reserve said its index of manufacturing conditions in the U.S. Mid-Atlantic region fell to minus 7.5 in July from June’s unexpectedly strong reading of minus 2.2. Analysts had expected a slightly smaller decline this month.
“The number is still in line with the Fed’s forecast at we saw in the FOMC minutes (Wednesday), that the economy is not as bad as it looked earlier this year, and that we could be near the end of the recession,” said Gary Thayer, senior economist with Wells Fargo Advisors in St. Louis, Missouri.
Any reading below zero shows contraction in the business sector in a region that spans eastern Pennsylvania, southern New Jersey and Delaware.
The Philadelphia Federal Reserve report was consistent with views that the initial stages of recovery will be far from robust.
“This is going to be a bumpy ride for the next six months for the economy. We are going to have volatility in the data because they are not all going to all turn at the same time,” said Kurt Karl, chief U.S. economist at Swiss Re in New York.
Among the components of the Philadelphia index, perhaps the most closely watched regional manufacturing measure, employment slipped but new orders were less weak.
“Overall, it is a mixed story ... But when you look at the bottom line, it is that this index is negative and showing a contraction,” said Rudy Narvas, senior analyst at 4CAST Ltd in New York.
Earlier, the U.S. Labour Department said that initial claims for state unemployment insurance fell 47,000 to a seasonally adjusted 522,000 in the week ended July 11.
The figure was much lower than expected, and the lowest since January. Still, the data was regarded as distorted by an unusual pattern of automotive industry job cuts.
A Labour Department official said there had been far fewer seasonal layoffs than anticipated in early July in the automotive sector and elsewhere in manufacturing.
“The big drop is not necessarily a reflection of what is going on in the economy,” the official said.
In fact, many of the automotive jobs typically shed for a few weeks for summer plant retooling had already been lost by permanent factory shutdowns as the industry slashes output to reflect extremely weak demand.
The Chicago Federal Reserve said recently that its index of Midwest automotive output was at the lowest in over 18 years.
Continuing jobless claims, which reflect people still receiving jobless aid after an initial week of benefits, fell by a dramatic 642,000 to 6.2 million, the largest weekly decline on record.
Even though the report was viewed with some suspicion, it fed ideas that the worst of the U.S. Labour market retrenchment is over, even if net job creation is months away.
“My first comment is, ‘wow.’ The expectation was that we’d see further improvement, and this data point suggests that businesses may have gone through the worst of their layoffs,” said Alan Gayle, senior investment strategist at Ridgeworth Investments, Richmond, Virginia.
The collapsing residential real estate market helped tip the United States into recession in late 2007 and analysts hope that housing will stabilise to help promote economic recovery.
But foreclosure filings jumped to a record 1.9 million on more than 1.5 million properties in the first half of 2009, the firm RealtyTrac of Irvine, California, said on Thursday.
The shattered housing market and the weak Labour market are going hand in hand, and as more Americans lose their homes, a robust consumer-lead economic recovery looks less likely.
“Unemployment-related foreclosures account for much of this increased activity, and the high number of borrowers who find themselves owing more on their mortgages than their homes are now worth represent a potentially significant future risk,” said James Saccacio, chief executive of RealtyTrac.
Additional reporting by Lynn Adler and Burton Frierson in New York, and Alister Bull in Washington