Claims for unemployment benefits fall; GDP revised up

WASHINGTON (AP) — Applications for jobless benefits dropped last week for the third time in four weeks, a sign that employers are cutting fewer jobs.

Initial claims for unemployment aid fell 16,000 to a seasonally adjusted 453,000, the Labor Department said Thursday. Wall Street analysts had expected a smaller drop.

In another report, the Commerce Department said that gross domestic product — the broadest measure of the economy's health — expanded at a feeble 1.7% annual rate in the April-to-June quarter.

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The decline in jobless claims returns them to where they were two weeks ago. Initial claims have fluctuated around 450,000 for most of this year.

The four-week average of claims, a less-volatile measure, dropped for the fifth straight week to 458,000, the lowest level in two months.

Applications for unemployment benefits, while volatile, provide a real-time snapshot of the job market. The weekly claims figures are considered a measure of the pace of layoffs and an indication of companies' willingness to hire.

Initial claims have fallen sharply since June 2009, the month the recession ended. They topped 600,000 at the end of that month. But most of that decline took place last year.

The number of people continuing to receive jobless benefits fell 83,000 to just below 4.5 million, the department said. But that doesn't include several million people who are receiving unemployment aid under extended programs approved by Congress during the recession.

The extended benefit rolls dropped about 300,000 to 4.9 million in the week ending Sept. 11, the latest data available. All told, about 8.8 million people received unemployment aid that week.

The 1.7% GDP reading is a notch higher than the 1.6% annual growth rate the government estimated a month ago. But it marks a sharp slowdown from a 3.7% growth rate logged in the first quarter. And, the new figure doesn't change the big picture: The economy has been losing momentum since the end of last year.

For each quarter, the government makes three estimates of GDP. It revises the figures based on more complete data. Thursday's was the third estimate and final estimate for the second quarter. The government makes it first estimate of the economy's third-quarter performance at the end of October.

Many think the economy grew at around the same anemic pace, or slightly worse, during the July-to-September quarter. Little improvement is expected in the final quarter of this year. That's why unemployment — now at 9.6% — is expected to stay high or even rise in the coming months.

Americans just aren't spending at a robust pace to bulk up companies' sales and make them confident enough to beef up hiring. Consumers and businesses, battered by the worst recession since the 1930s, are clinging to their cautious ways.

In the second quarter, Americans saved 5.9% of their disposable income, the most in a year. Before the recession, they saved just 2.1%.

Consumers boosted their spending in the second quarter at a 2.2% pace. It was a tad better than the government's previous estimate but is still considered lackluster for this point in the recovery by historical standards. Economists think consumers will spend at a slightly slower pace through the rest of this year.

GDP measures the value of all goods and services produced in the U.S. It covers everything from machinery to manicures.

The sharp dropoff in GDP in the second quarter mainly reflected fallout from a bigger trade deficit. A surge in imported goods swamped growth in U.S. exports to other countries. The bigger trade gap that resulted shaved 3.5 percentage points from second quarter growth, the most since 1947.

Another major factor in the economy's slowdown: Businesses added to their stockpiles of goods at a slower pace in the spring, reflecting concerns about the spending appetites of their customers.

The economy's growth has to be much stronger that what the U.S. has been logging to lower unemployment. Under one rule of thumb, the economy would have to expand at least 5% for an entire year to drive down the jobless rate by one percentage point.

The Federal Reserve is weighing new action to bolster the economy. One likely step is to buy more government debt. Doing so would be aimed a lowering rates on mortgages, corporate loans and other debt. The Fed's goal: get Americans to boost their spending, which would strengthen the economy.

Thursday's report also showed that prices — excluding food and energy — rose at a slower pace in the second quarter. They increased at a 1% annual rate. That was down from a 1.2% in the first quarter and was the slowest pace since the beginning of 2009.

One of the things that Fed doesn't want to see happen is for the weak economy to lead to a dangerous bout of deflation, a widespread drop in prices of goods and services, in wages, and in the value of homes, stocks and other assets.

Meanwhile, the GDP report also showed that corporations' after-tax profits rose at a slower pace in the spring. Less generous profits are likely to make businesses think twice about making big capital purchases or stepping up hiring.

When the government reported in late August that the economy's growth had slowed to just a 1.6% pace, it stoked fears the economy might fall back into a recession. Since then, those fears have receded a bit, with reports showing that sales at retailers and activity at factories are holding up. Nonetheless, with the economy so fragile, it is more vulnerable to being hurt by any negative forces.

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