Unemployment applications drop, but remain high

June 16, 2011 - 8:41 AM

WASHINGTON (AP) — Fewer Americans applied for unemployment benefits last week, though applications remain above levels consistent with a healthy economy.

The Labor Department said Thursday that unemployment benefit applications fell 16,000 to a seasonally adjusted 414,000, the second drop in three weeks. That's a positive sign that layoffs are slowing.

Still, applications have been above 400,000 for 10 straight weeks, evidence that the job market is weak compared to earlier this year.

Applications had fallen in February to 375,000, a level that signals sustainable job growth. They stayed below 400,000 for seven of nine weeks. But applications surged in April to 478,000 — an eight-month high — and they have declined slowly since then.

The four-week average, a less volatile measure, was unchanged.

The elevated level of applications suggests that companies pulled back on hiring in the face of higher gas and food prices, which have cut into consumer spending. Hiring has slowed sharply since applications rose.

Employers added only 54,000 net new jobs in May, much slower than the average gain of 220,000 per month in the previous three months. The unemployment rate rose to 9.1 percent from 9 percent.

The economy needs to generate at least 125,000 jobs per month just to keep up with population growth. At least twice that many are needed to bring down the unemployment rate.

But economists forecast the nation will add only about 1.9 million jobs this year, according to an Associated Press Economy survey earlier this week. That's only about 150,000 per month and is lower than a previous estimate two months ago.

More hiring is important because it's key to boosting consumers' incomes, which in turn would fuel more spending. Consumer spending grew at a weak 2.2 percent annual rate in the January-March quarter, down from 4 percent in the previous quarter. That pushed down economic growth to 1.8 percent from 3.1 percent.

The economy is expected to improve by the second half of this year. Gas prices have fallen by nearly 30 cents per gallon since peaking in May at a national average of nearly $4 per gallon. And manufacturing output, which declined in April, should improve once parts shortages stemming from Japan's March 11 earthquake ease.

Lower gas prices should enable consumers to spend more on other goods. That will likely push economic growth back to a 3.2 percent pace in the second half the year, according to the AP survey of economists.

Yet some companies are cutting jobs. Johnson & Johnson said Wednesday that it will stop making some of its heart devices because sales have fallen, a move that will eliminate up to 1,000 positions. Some of those cuts will be overseas.

And state and local governments are laying off thousands of employees in order to close large budget deficits. On Tuesday Los Angeles' school district approved a plan that would cut 2,000 jobs in the 2011-2012 school year.