Washington, May 22 (Bloomberg) -- U.S. initial applications for unemployment benefits rose last week, breaking a string of three straight declines, as tornadoes in the Midwest closed factories, government figures showed. States received 428,000 new applications for unemployment insurance in the week that ended Saturday, up from 421,000 in the prior week, the Labor Department said. ``Absent the job losses caused by tornadoes in the Midwest, initial jobless claims might have ticked down for the fourth consecutive week,'' said Oscar Gonzalez, an economist at John Hancock Financial Services. ``The labor market remains a weak link in the economic recovery, but even incremental improvement is welcome.''
Since early February weekly initial claims have exceeded 400,000, which some economists consider a sign of a weak labor market. Economists said that while companies are still focused on cutting costs such as labor to sustain profits amid sagging demand, the job market is no longer deteriorating. Some economists estimate storm-related plant closings added as many as 15,000 claims last week. A General Motors Corp. factory with 2,600 workers in Oklahoma was among those disrupted. The economy will expand more rapidly in the second half, leading to more business investment, lower unemployment and the fastest economic growth next year since 2000, according to a survey of business economists released today. Gross domestic product, the broadest measure of economic activity, will increase at a 3.6 percent pace in the second half and for all of 2004, according to the National Association for Business Economics, which surveyed 37 forecasters May 2-16. That would be more than twice the 1.6 percent pace during the first three months this year and the fastest since 3.8 percent in 2000.
Jobless Claims
Federal Reserve Chairman Alan Greenspan yesterday told Congress it is ``not unreasonable'' to expect faster growth later this year. The median of 39 estimates for initial claims in a Bloomberg News survey was 418,000. The less-volatile four-week moving average fell by more than 7,000 to 433,000. Tornadoes that swept through Arkansas, Kansas, Missouri, Nebraska, South Dakota and Tennessee on May 4 cost insurers at least $325 million, the Insurance Information Institute said. Procter & Gamble Co., the largest U.S. maker of household goods, said its fourth-quarter sales will be reduced as much as 1 percent because tornado damage forced the temporary closing of its only U.S. snacks plant in Jackson, Tennessee. The number of people on jobless benefit rolls in the week that ended May 10 held close to the highest in more than a year. The number of people still on jobless benefit rolls rose in the week that ended May 10 fell to 3.699 million from 3.735 million, which was the highest since November 2001.
Controlling Costs
A lack of pricing power and excess capacity has prompted many companies to hold down costs, including trimming payrolls. Agilent Technologies Inc. is ``still in the process'' of eliminating jobs this year, said Edward Barnholt, chief executive officer, in a May 20 interview with Bloomberg Television. ``There were still some people that will be leaving in our third and fourth quarter and a few people that are still being notified, but by and large we expect to have the bulk of this behind us very shortly,'' Barnholt said. Companies have been striving for productivity gains and holding down costs until demand picks up, reducing the need for additional workers. Over the 12 months ended in March, productivity grew 2.3 percent while the economy expanded 2.1 percent. ``The ability of business managers to reduce costs, especially labor costs, though investment or restructuring is, of course, one reason that labor markets have been so weak,'' Greenspan said yesterday.
Unemployment Rate
Ford Motor Co., the world's second-largest automaker, said it plans to hasten cost cuts this year because it can't raise prices enough on most U.S. models to offset the impact of rebates and low- interest loans. International Business Machines Corp. and Sun Microsystems Inc. each announced plans to eliminate more than 4,000 jobs this year, exceeding last year's cuts. The U.S. jobless rate rose to 6 percent in April, matching an eight-year high, the government reported earlier this month. Companies cut payrolls for a third month, bringing the total number of workers who have lost their jobs in the last three months to 525,000. The insured employment rate, which tends to track the U.S. jobless rate, held at 2.9 percent in the week ended May 10. The Labor Department also said 27 states and territories reported increases in new claims, while 26 reported decreases.
Exhaustion Rate
The percentage of unemployed U.S. workers who couldn't find a job before drawing their last benefit check rose in April, Labor said in a separate report. The so-called exhaustion rate rose to 43.1 percent in April from 42.9 percent the previous month. When a worker loses a job, states provide unemployment checks, usually for 26 weeks. The federal government extended that period by 13 weeks until the end of this month. The figures do not include those receiving extended benefits. Companies aren't likely to hire many workers until after the economy strengthens. The Conference Board's index of leading U.S. economic indicators rose in April for just the first time this year, indicating that the economy will be slow to accelerate in the next three to six months, economists said. The economy will probably expand at a 2.1 percent annual pace this quarter after growing at a 1.6 percent rate in the first three months of the year, according to the median forecast of 59 economists surveyed by Bloomberg News this month.
Growth Forecast
By the last three months of the year, growth will accelerate to 3.8 percent at an annual rate, according to the survey. ``Readings on production and employment have been on the weak side, but the economic fundamentals -- including the improved conditions in financial markets and the continued growth in productivity -- augur well for the future,'' Greenspan told the Joint Economic Committee of Congress yesterday. A survey by the Institute for Supply Management showed U.S. companies are ``optimistic'' about business for the balance of this year, and expect revenue to rise as they limit hiring and spending. Most companies expect improved prospects for the rest of the year, said Norbert Ore, chairman of the ISM's business survey committee. In the meantime, significant improvement in the labor market soon is ``at best unlikely'' as companies continue to focus on cost cutting to try to maintain profit margins, said John Hancock's Gonzalez. The NABE economists association conducts its outlook survey four times a year, in February, May, September and November. In May 2002, the panel projected the U.S. economy would grow 2.8 percent last year; it expanded 2.4 percent. In May 2001, the group forecast a 2 percent increase for the year; the gain was 0.3 percent. //www.bloomberg.com