The Wall Street Journal-20080201-Higher Jobless Claims- Spending Slowdown Renew Worries

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Higher Jobless Claims, Spending Slowdown Renew Worries

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Two fresh signs of weakness -- a sharp rise in the number of Americans filing for unemployment benefits and a slowdown in consumer spending -- renewed fears about the economy.

Initial jobless claims rose 69,000 to a seasonally adjusted 375,000 for the week ended Jan. 26, their largest one-week gain in more than a decade, the Labor Department said.

Such claims now stand at their highest level since October 2005, in the wake of Hurricane Katrina. Moreover, the four-week moving average, which tends to be less volatile, rose to 325,750 from a revised 315,500.

The government's January employment report, due out today, will show whether the labor market is indeed deteriorating. Despite last week's jump in jobless claims, data released Wednesday by Automatic Data Processing Inc., a payroll-management company, said job creation rose in January.

In recent weeks, economists have been perplexed by the labor market's signals. Until yesterday, unemployment claims had suggested some resilience in the job market. That didn't seem consistent with a rise in the nation's unemployment rate to 5% in December from 4.7% the month before. But now, jobless claims also indicate a softening job market.

Labor Department analysts said seasonal factors likely contributed to the claims numbers in recent weeks.

Wachovia Corp. economists said that "both the latest increase and earlier decreases were likely exaggerated." The general trend, economists said, is layoffs are gradually increasing.

Ken Goldstein, a labor economist at the Conference Board, a New York business-research firm that yesterday released its tally of help- wanted ads in newspapers across the country, said job offerings have been flat over the past three months.

Meanwhile, consumer spending in December rose just 0.2% from the previous month, compared with a 1% gain in November. Personal income in December rose 0.5% after increasing 0.4% in November, according to the Commerce Department.

In the past two weeks, the Federal Reserve has slashed interest rates by 1.25 percentage points to spur the economy. In a statement Wednesday, the central bank said it would make further cuts if needed. But in a sign of the challenge it faces, new data yesterday showed that inflation is picking up.

The core price index of personal-consumption expenditures, the Fed's preferred inflation gauge, rose 0.24% in December from November, the second straight reading above 0.2%, and the year-to-year increase rose to 2.24% from 2.15% in November, according to the Commerce Department report. That is above the 1.5% to 2% range of Fed policy makers' definition of price stability.

If the economy expands weakly and unemployment rises as the Fed expects, that higher core inflation is less likely to be sustained. But if inflation continues to accelerate, it could complicate the Fed's efforts to sustain economic growth.

Separately, a Labor Department measure of employment costs -- also a gauge of inflation -- showed costs rose 0.8% in the fourth quarter, the same pace as in the third quarter.