US jobless claims, price data back low rates policy

Fears that growth could be slowing were heightened by a report showing factory activity in the country's Mid-Atlantic region braked to its slowest pace in 10 months in June. The employment gauge fell to its lowest level since November.

Financial markets have been worried that a crisis that started in Greece could spread. Belt-tightening by European governments already looks set to slow economies there and take a small bite out of US growth.

For a labour market that is struggling to recover from the deepest recession since the 1930s, the head winds are proving problematic.

Initial claims for state unemployment benefits increased 12,000 to a seasonally adjusted 472,000 as manufacturing, construction and education sectors shed workers, the Labour Department said.

Financial markets had expected claims to fall to 450,000. The data was in the survey period for the government's closely monitored employment report for June. A Labour Department official said states had reported claims in manufacturing, construction and education sectors.

In a second report, the department said its seasonally adjusted Consumer Price Index fell 0.2 percent in May, the largest decline since December 2008, after dipping 0.1 percent in April.

Moderate recovery

The Philadelphia Federal Reserve Bank's business activity index dropped to eight in June from 21.4 in May. That was well below economists' expectations for 20.9. A reading above zero indicates expansion in the region's manufacturing.

Stocks on Wall Street fell on the claims and factory data, brushing aside Spain's auction of government bonds, which attracted strong demand. US government debt prices rose, while the dollar fell to three-week lows against the euro.

Though the recovery is showing some weakness, expansion continues at a moderate pace.

The Conference Board's leading index, which tries to predict future levels of economic activity, rose 0.4 percent to a record 109.9 in May, after stagnating in April, another report showed.

After falling rapidly last year, jobless claims have made little progress in 2010.

Analysts see this as a sign that while layoffs have abated, companies are still not confident enough to add to payrolls, indicating unemployment will remain uncomfortably high for sometime.

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