Economy: Jobless Claims Rise as Growth in Manufacturing Slows

By Jeannine Aversa Associated Press Writer Published: Aug 1, 2002

WASHINGTON (AP)- Manufacturing grew more slowly, construction spending fell to its lowest level in almost two years and new claims for jobless benefits went up, signs that the economy's road to recovery is hitting a rough patch.

The latest batch of economic reports released Thursday underscored the difficulties facing companies and workers amid an uneven recovery.  And, they raised new questions about where the economy is heading.

On Wall Street, stocks sagged.  The Dow Jones industrials fell 179 points and the Nasdaq was off 35 points in noon trading.

Manufacturing is growing sluggishly, with the Institute for Supply Management's index of business activity dipping to 50.5 in July from 56.2 in June.

The performance was weaker than the index reading of 55 that many analysts were predicting, but it still marked the sixth month in a row in which manufacturing activity flashed a growth signal.  An index above 50 signifies growth in manufacturing, while a figure below that shows contraction.

"Did the manufacturing sector only hit an air pocket in July or did one of the engines flame out?" wondered economist Joel Naroff of Naroff Economic Advisors.  "July seems to be shaping up as our month of discontent."

In another report, the Commerce Department said construction spending declined by 2.2 percent in June from the previous month.  That pushed down the value of construction projects to $820.8 billion, the lowest level since August 2000.

Treasury Secretary Paul O'Neill, appearing Thursday on CBS' "The Early Show," said he remains optimistic about the economy, noting recent improvements in wages.

"We're bent on getting more people back to work and we need some action by Congress to give us some additional steps," O'Neill said, calling again for passage of legislation giving the president greater leeway to negotiate international trade treaties.

Construction activity was weaker in June than many analysts were expecting.  They were forecasting a 0.3 percent rise.  Construction spending dropped by 2 percent in May, a bigger decline than previously reported.

The weakness in June was led by a 3.4 percent cut in spending on commercial projects, including office buildings and hotels, by private builders.  The government also scaled back spending by 3.1 percent, with cuts reported for industrial complexes, highways, schools and hospitals.

Spending on home building by private companies dipped by 0.9 percent.

And, in a third report, more Americans filed new claims for unemployment insurance last week.

For the work week ending July 27, new applications for job benefits rose by a seasonally adjusted 20,000 to 387,000, the Labor Department reported.  That pushed claims to their highest level since the beginning of July.

The increase comes after claims fell sharply in the prior two weeks.

After bolting out of the starting blocks at the beginning of the year, the economy lost momentum in the spring, growing at an annual rate of just 1.1 percent.  That was down from a 5 percent rate in the first quarter of this year.

Given the slowdown and continuing economic uncertainties, many economists believe the Fed will leave short-term interest rates at 40-year lows at its next meeting on Aug.  13.  The Fed has held rates steady all year long.  Growing numbers of economists predict rates will be left alone for the rest of the year.

In the jobless claims report, Thomas Stengle, a statistician with the Labor Department, cautioned against reading too much into the figures because they tend to bounce around a lot this time of year.

Auto plants temporarily shut down to retool assembly lines for new models this time of year.  Difficulties in adjusting for these seasonal factors can distort the numbers.

The more stable four-week moving average of claims, which smoothes out weekly fluctuations, edged up last week to 386,000.  However, the moving average has been below the 400,000 mark - a level associated with weakness in the job market - for seven straight weeks, an encouraging sign.

Nevertheless, the number of workers continuing to draw jobless benefits rose for the week ending July 20 - the most recent period for which the information is available - to 3.5 million, suggesting that companies aren't vigorously hiring.

Still, many economists believe that jobs growth for July will be sufficient to keep the nation's unemployment rate steady at 5.9 percent.  But the growth in jobs probably won't be strong enough to bring the unemployment rate down for the month.