NEW YORK (Reuters) - New claims for unemployment benefits fell less than expected last week, according to a government report on Thursday that could add to fears the labor market recovery has taken a step back.
Nonfarm productivity growth was a touch faster than previously estimated in the first quarter, government data showed on Thursday, while a mild increase in unit labor costs pointed to benign wage inflation.
PIERRE ELLIS, SENIOR ECONOMIST, DECISION ECONOMICS, NEW YORK:
"It fell from an upwardly revised level. The Labor Department didn't identify any special factors. Claims are not reaccelerating, which is good news, but the bad news is they seem to have settled at this higher level. It probably adds to the momentum for a not-so-strong increase in May jobs in the Labor Department report due Friday, though this is not a number that contributes to the monthly report."
CAMILLA SUTTON, CHIEF CURRENCY STRATEGIST, SCOTIA CAPITAL, TORONTO:
"Jobless claims were not horrible, but it is still above 400k, which is certainly a negative. There is a lot of hesitancy ahead of tomorrow's nonfarm payrolls report. Every indication we have had so far points to a slightly softer labor market in the U.S. The euro and dollar are in an ugly dog contest and the euro is winning right now."
JOHN CANALLY INVESTMENT STRATEGIST AND ECONOMIST, LPL FINANCIAL, BOSTON:
"We've been through a couple week period here where basically every piece of economic data has just been awful. This was a little less awful but still awful. But the 4-week average did fall to a 6-week low, so that is somewhat encouraging. Looking ahead, what you are faced with in June is more teacher layoffs now that school is over, the bad weather is going to cause some layoffs and most importantly the pull ahead of the auto plant shutdowns in mid-June instead of July. That is going to elevate claims throughout the month of June. This might be the best reading for a while for claims, then you get a payback the other way in July."
SEAN INCREMONA, ECONOMIST, 4CAST LTD, NEW YORK:
"The data continues to disappoint here. This is above expectations again and points out a trend that isn't really getting better at all. We did see plenty of disappoint yesterday with ADP and ISM, so heading into payrolls it should keep that tone very much intact.
(Current Treasury yields) are certainly justified from the standpoint of looking into a slowdown from what we had going on in the economy earlier in the year. Next week we have auctions coming up and it is really going to be tough sledding for yields to go any lower. The odds of QE3 at this stage of the game are so very low, so the bond market doesn't have that to lean on this time around like it did last year."
DAVID SLOAN, ECONOMIST, IFR ECONOMICS, A UNIT OF THOMSONREUTERS:
JOBLESS CLAIMS: "The improvements in the latest data are insufficient to erase fears that May's payroll will report a slowing in employment growth. The influence of special factors in the latest week appears to be modest. Missouri did note tornado damage as one of several factors influencing its data without giving an numerical estimate of its impact. Seasonal adjustments were a minor negative, with unadjusted initial claims up by 2k. We have now had 8 straight weeks above 400k to follow 4 straight weeks when the level was below 400k... Before this week initial claims data were hinting at some loss of momentum in the labor market recovery. Today's data means that message persists, with the modest weekly initial claims decline not suggesting a peaking of gasoline prices has reignited the recovery's momentum.
PRODUCTIVITY: "The most notable feature if the final Q1 productivity and costs report was a large downward revision to Q4 unit labor costs, but the report contains little fresh information...There seems to be little in this report that is going to grab the Fed's attention. The revisions seen should not have caused much surprise. Despite the lack of revision to Q1 GDP the breakdown did show than non-farm business output was revised up (outperforming GDP which was hit by a sharp fall in government). The GDP revisions also included downward revisions to Q1, and more so, Q4, compensation data. The upward revisions to non-labor costs can be seen as fresh news, but when unit labor costs are revised, non-labor costs usually see offsetting revisions in the other direction."
MARKET REACTION: STOCKS: U.S. stock index futures hold gains BONDS: U.S. bond prices steady at lower levels FOREX: The dollar extends losses against the euro