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As jobless claims fall, layoffs could slow further

Job seekers attend a job fair in Vicksburg, Miss. The number of newly laid off workers filing jobless claims has fallen.
Job seekers attend a job fair in Vicksburg, Miss. The number of newly laid off workers filing jobless claims has fallen.
BarbaraGauntt/The Clarion-ledge, Associated Press

WASHINGTON — In a positive sign for the economy, companies are laying off fewer workers as they prepare to ramp up production to replenish their depleted stockpiles of goods.

Many analysts pointed to Thursday's drop in jobless claims as evidence of a trend signaling fewer job losses in coming months, particularly compared with the flood of layoffs earlier this year.

Still, job openings remain scarce. And most economists expect the unemployment rate to keep rising to 10 percent or higher by the end of this year. Today, the government will report the July unemployment rate.

First-time claims for jobless benefits dropped to a seasonally adjusted 550,000 last week, down from 588,000 in the previous week, the Labor Department said Thursday. The four-week average of claims, which smooths out fluctuations, dropped to 555,250, its lowest point since late January.

"The lower claims figures are an important economic development and confirmation that the economy is turning the corner," Joseph LaVorgna, chief U.S. economist at Deutsche Bank, wrote in a note to clients.

Fewer layoffs could help boost consumer sentiment. That's because those who are spending less now for fear of losing their jobs could grow more confident. If they start borrowing and spending more, it would help invigorate the economy.

Many economists say an improved job market could be evident in the unemployment report to be issued today. LaVorgna, for example, has cut his projection of job losses for July to 150,000 from 325,000. That would be the fewest since last July.

Overall, analysts expect the report will show the unemployment rate rose to a 26-year high of 9.6 percent last month, up from 9.5 percent in June, according to survey by Thomson Reuters. Employers are forecast to have cut 320,000 jobs in July, the survey found, down from 467,000 in June and from an average of 645,000 in the six months from November to April.

But many economists think the July job losses will be smaller. Dean Maki, chief U.S. economist at Barclays Capital, expects Friday's report to show a 275,000 drop in payrolls.

Analysts generally expect production to ramp up in the July-September period as manufacturers restock shelves and warehouses.

Layoffs in the construction industry should also decline, Maki said, because home building has recovered from record lows. Spending on residential construction rose in June for the first time in more than three years, the Commerce Department said Monday.

"We think the trend is toward smaller and smaller job cuts" until the last three months of the year, Maki said, when employers may actually add jobs — which hasn't happened since December 2007.