Friday, May 15, 2009

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U.S. Economy: Jobless Claims Exceeds Forecast

More Americans than forecast filed unemployment-insurance claims last week because of the Chrysler LLC bankruptcy that is likely to reverberate through the economy for months.

Initial jobless claims rose by 32,000 to 637,000 in the week ended May 9, the Labor Department said today in Washington. A good part of the jump was from states reporting an increase in auto-related claims, a Labor official said without providing a more precise estimate. The department also said that wholesale prices rose in April, spurred by a gain in food costs.

The bankruptcy filing by Chrysler, and the potential for a similar step by General Motors Corp., is likely to cause further job losses as suppliers and communities are affected. The industry’s woes threaten to delay the economy’s recovery from the deepest recession in half a century and send the unemployment rate up from what’s already a 25-year high.

“This is definitely the first area where you’ll see the fallout from the GM and Chrysler shutdowns,” said Omair Sharif, an economist at RBS Securities Inc. in Greenwich, Connecticut, who forecast claims would rise to 640,000. Factory production and orders for durable goods will probably “also take a bit of a hit,” he said.

Stocks and Treasuries rose. The Standard & Poor’s 500 Stock Index rose 1 percent to close at 893.07 in New York. Benchmark 10-year notes yielded 3.09 percent at 4:26 p.m., compared with 3.12 percent late yesterday.

Exceeds Forecast

Jobless claims were forecast to rise to 610,000 from 601,000 initially reported for the prior week, according to the median projection of 38 economists in a Bloomberg News survey. Estimates ranged from 580,000 to 650,000. Labor revised the prior week’s figure to 605,000.

The total number of people collecting unemployment insurance surged in the prior week to 6.56 million, setting a record for the 15th straight week and indicating companies are still not hiring. The lack of jobs may restrain consumer spending, the biggest part of the economy, and put off a return to growth that economists project for later this year.

“What is clearly not positive for the labor market is the ongoing rise in unemployment that is implied by continuing claims,” Abiel Reinhart, an economist at JPMorgan Chase & Co. said in a note to clients. “We could see the unemployment rate rise a few tenths of a percent or more between the April and May employment reports.”

Plant Shutdowns

Payrolls fell by 539,000 in April and the jobless rate climbed to 8.9 percent, the highest level since 1983, Labor figures showed last week. The economy has lost 5.7 million jobs since the recession began in December 2007, the most in any economic slump since the Great Depression.

Auburn Hills, Michigan-based Chrysler on May 1 idled its 22 U.S. plants, which had about 26,800 hourly workers, and auto parts suppliers also are likely to cut jobs as they shut factories.

Claims will probably be influenced by more auto shutdowns in coming months. General Motors, facing a U.S.-imposed June 1 deadline to restructure or file for bankruptcy, said last week it plans to idle, partially or completely, as many as 23 stamping, engine and transmission plants during the period through July. The temporary closings are in conjunction with GM’s plan to idle 13 assembly plants for as long as nine weeks in the same period, announced last month.

Wholesale Costs

A separate report from Labor showed prices paid to U.S. producers rose 0.3 percent in April as food costs jumped. The increase followed a drop of 1.2 percent in March. Excluding fuel and food, so-called core prices rose 0.1 percent, as anticipated.

Wholesale food costs climbed 1.5 percent, the biggest gain in more than a year. The price of fresh eggs jumped 44 percent, the most since records began in 1992.

DuPont Co., the third-biggest U.S. chemical maker, and Dr Pepper Snapple Group Inc., the beverage maker spun off by Cadbury Plc last year, are among companies able to charge more. Wilmington, Delaware-based Dupont raised prices 5 percent on average in the first quarter and said demand will improve because most customers have used up inventories and are increasing purchases.

Plano, Texas-based Dr Pepper Snapple yesterday reported first-quarter profit that beat analysts’ estimates and raised its 2009 forecast after increasing prices and cutting expenses.

“Markets and consumer sentiment appear to be on the mend,” Chief Executive Officer Larry Young said during a conference call with analysts.

Light Trucks

Excluding food and fuel, the gain in costs was led by a jump in the cost of light trucks and pharmaceuticals. Declines in tobacco products and civilian aircraft limited the gain.

The figures helped ease concern over deflation, or an extended decline in prices that hurts the economy.

The report “provides no evidence for the deflation thesis, even in the midst of a very deep manufacturing slump,” John Ryding, chief economist at RDQ Economics LLC in New York, said in a note to clients. “Commodity price deflation appears to be slowing in crude goods prices and these price changes will likely turn positive in the coming months.”

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