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Fewer auto closings reduce U.S. unemployment claims

Associated Press
July 12, 2012
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The number of people seeking U.S. unemployment benefits plunged last week. But a big reason was that some automakers skipped their traditional summer shutdowns to keep up with demand, leading to fewer temporary layoffs of autoworkers.

Sales of new cars and trucks surged in June, extending the auto industry's rebound. Automakers also began their Independence Day promotions early, lifting sales at the end of the month.

Weekly applications for unemployment aid dropped 26,000 to a seasonally adjusted 350,000, the Labor Department said Thursday. That's the lowest level since March 2008. The four-week average, a less volatile measure, fell to 376,500.

Economists expect most of the decline to be reversed in the coming weeks.

"Take July with a grain of salt," Jill Brown, an economist at Credit Suisse, said in a note to clients. The auto shutdowns "often cause extreme volatility."

Automakers traditionally close their plants for the first two weeks in July to prepare them to build new models and their employees file for unemployment benefits. But Ford Motor Co. said in May that it would reduce its usual two-week closing to only one week. And Chrysler said May 3 that it would skip the shutdown entirely.

Applications for unemployment benefits measure the pace of layoffs. When they consistently fall below 375,000, it generally suggests hiring is strong enough to reduce the unemployment rate. They have fluctuated at or above that level since April.

At the same time, hiring has slowed sharply compared with the first three months of the year. Employers added only 80,000 jobs in June, the third straight month of weak hiring. The unemployment rate was stuck at 8.2 percent.

Job gains have averaged only 75,000 per month for in the April-June quarter. That's roughly a third of the 226,000 average monthly gains in the first quarter.

Employers advertised more job openings in May after a sharp drop in April, according to a government report released Tuesday. That suggests the job market is stabilizing.

Still, more jobs are needed to lower painfully high unemployment and boost pay for those who are working. Wages have barely kept up with inflation over the past year, which has led consumers to pull back on spending.

Consumer spending is critical because it drives roughly 70 percent of growth. But the economy isn't growing quickly enough to encourage more hiring. The economy grew at an annual rate of just 1.9 percent in the first three months of the year.

Most economists don't expect growth picked up in the April-June quarter. And some predict that it weakened.

The Federal Reserve downgraded its outlook for the economy this year. It now expects growth of just 1.9 percent to 2.4 percent for 2012. That's half a percentage point lower than the range it estimated in April. The Fed also says the unemployment rate won't fall much further this year than it has already.

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