Winston-Salem, Business, News, Events, Greensboro, Technology, IT Services

June 25 (Bloomberg) — The number of Americans filing claims for unemployment benefits unexpectedly rose last week, a reminder that companies will keep cutting staff even as the economy stabilizes.

Initial jobless claims rose by 15,000 to 627,000 in the week ended June 20, from a revised 612,000 the week before, the Labor Department said today in Washington. A report from the Commerce Department showed gross domestic product shrank at a 5.5 percent annual pace in the first three months of the year.

Recent data show some areas of the economy, such as housing and manufacturing, are seeing a smaller pace of decline, consistent with the Federal Reserve’s projection that the slump is “slowing.” Even so, companies are unlikely to hire until there are sustained gains in demand, meaning a recovery remains dependent on the effectiveness of government stimulus efforts.

“We’re in the prelude to the end of the recession,” said Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh, who accurately forecast the drop in GDP. “The stimulus will build steam, but it’ll be a pretty tepid recovery.” The loss of jobs “is one factor holding back consumer spending,” he said.

Stocks gained as higher oil prices triggered a rally in energy shares. The Standard & Poor’s 500 index was up 0.8 percent to 908.31 at 10:33 a.m. in New York. Treasury securities were little changed.

Unexpected Jump

Economists forecast claims would fall to 600,000, according to the median of 41 estimates in a Bloomberg News survey, from a previously reported 608,000 a week earlier.

The number of people collecting unemployment insurance increased by 29,000 in the prior week, to 6.74 million.

The four-week moving average of initial claims, a less volatile measure, rose to 617,250 from 616,750.

The jobless rate among people eligible for benefits held at 5 percent in the week ended June 13. The June 13 data coincides with the week Labor conducts its monthly payrolls survey, which the department is due to report on July 2.

Thirty-six states and territories reported a decrease in new claims for the week ended June 13, while 17 had an increase. Some states that don’t ordinarily report layoffs related to the end of the school year saw larger than expected job losses in education services, Labor said, declining to be specific.

Economy Shrinks

The contraction in first-quarter GDP, which was less than the 5.7 percent drop estimated last month, capped the worst six- month performance in half a century, the revised figures from Commerce showed. The world’s largest economy shrank at a 6.3 percent annual rate from October to December.

The biggest slump in business investment and inventories since records began in 1947 and the worst contraction in homebuilding since 1980 paced the decline last quarter.

The housing recession, now in its fourth year, is showing signs of abating. Builders broke ground on more homes than forecast in May, with single-family starts posting a third straight gain, Commerce figures showed earlier this month.

Business investment may also be on the mend. Orders for non-defense capital goods excluding aircraft, a proxy for future spending on new equipment, jumped in May by the most since 2005, Commerce reported yesterday.

Some companies are seeing signs of stabilization. Nucor Corp., the second-largest U.S. steelmaker, may boost plant operating rates to as much as 60 percent of capacity in the third quarter as customers use up inventories, Chief Executive Officer Dan DiMicco said.

Orders Improving

“We have seen distributors begin to order at a level consistent with real demand,” DiMicco said in a Bloomberg television interview yesterday in New York. Still, “we will not be happy, and our competitors will not be happy, until we are north of the 80 percent levels again,” he said.

Fed officials said in a statement at the end of their two- day meeting yesterday said “he pace of economic contraction is slowing.” Consumer spending “remains constrained by ongoing job losses, lower housing wealth and tight credit.”

At the same time, the slack in the economy means “inflation will remain subdued for some time,” they said.

Part of that slack is being created by the bankruptcies of General Motors Corp. and Chrysler LLC. Earl Hesterberg, chief executive officer of Group 1 Automotive Inc., the owner of 99 U.S. and U.K. dealerships, this month said car sales remain weak.

Auto Slump

“We now have eight or nine months of bouncing along the bottom,” Hesterberg said in an interview, referring to the industry. “Really we don’t see much difference from month to month.”

Still, other areas show signs of improvement this quarter. Retail sales rose in May for the first time in three months, government figures showed.

The economy may not yet need a second stimulus after the administration’s $787 billion initiative, which includes tax cuts and spending on infrastructure, President Barack Obama said at a White House news conference this week.

“I think it’s important to see how the economy evolves and how effective the first stimulus is,” the president said.

To contact the reporters on this story: Courtney Schlisserman in Washington [email protected] Chandra in Washington [email protected]