U.S. labor market cools, GDP revised down

BLOOMBERG — The number of Americans applying for unemployment benefits rose to a one-month high and companies hired fewer workers than forecast, casting doubt on the vigor of the labor market.

First-time claims for unemployment insurance payments increased by 10,000 to 383,000 in the week ended May 26, according to Labor Department data released Thursday (May 31). Private employment climbed by 133,000 in May, Roseland, N.J.-based ADP Employer Services said. The median estimate of 39 economists surveyed by Bloomberg News called for an advance of 150,000.

Stocks and Treasury yields fell as the figures pointed to weakness in the world’s largest economy just as Europe’s debt crisis intensifies. Other reports released Thursday showed gross domestic product grew less than initially estimated in the first quarter and business activity in May expanded at the slowest pace in more than two years.

“All the signposts are in the same direction — which is for slowing job growth,” said Michelle Meyer, a senior U.S. economist at Bank of America Corp. in New York, who projected claims would rise. “The backdrop for consumer spending is weak. This is the recovery of fits and starts and it seems like we are entering a slow patch again.”

Companies may be wary of adding workers until they see more evidence of a pickup in consumer spending. A Labor Department report set for a Friday release may show private payrolls rose by 160,000 in May, and unemployment held at 8.1%, economists projected. Including government workers, employment probably rose by 150,000 following a 115,000 April increase that was the smallest in six months.

“Businesses have exhibited an extreme degree of caution in terms of capital investment as well as hiring,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Conn. “Things are just kind of slogging along.”

The Institute for Supply Management-Chicago Inc. said its barometer decreased to 52.7, the lowest since September 2009, from 56.2 in April. Readings greater than 50 signal growth. Economists projected the gauge would rise to 56.8, according to the median of 55 estimates in a Bloomberg survey.

Gross domestic product climbed at a 1.9% annual rate from January through March, down from a 2.2% prior estimate, reflecting smaller gains in inventories and bigger government cutbacks, according to revised Commerce Department figures released Thursday. The report also showed corporate profits rose at the slowest pace in more than three years and smaller wage gains at the end of 2011.

The U.S. cooled last quarter just as other global economies also lost steam. Growth in the 17-nation euro region stagnated in the first quarter from the same time in 2011. China’s economy expanded 8.1% in the first three months of 2012 from a year earlier, the slowest pace in 11 quarters.

Revisions to income figures may raise concern about whether purchases can sustain similar gains. Wages and salaries rose by $28.9 billion in the fourth quarter, less than the $89.1 billion gain previously reported. That reduced the saving rate to 4.2% at the end of 2011. The rate decreased to 3.6% in the first quarter, the lowest since the fourth quarter of 2007.

Gasoline prices have declined since the end of the first quarter, leaving consumers with more to spend on other goods and bolstering confidence in their finances.

The Bloomberg Consumer Comfort Index rose to minus 39.3 in the week ended May 27 from minus 42 in the prior period. The reading was little changed from this year’s average of minus 38.9. All three of its components — the economy, personal finances and buying plans — advanced.

“I remain cautiously optimistic about improving economic trends as the year goes on and I feel like our North American business is performing OK in a difficult environment,” Ron Sargent, chief executive officer of office-supply retailer Staples Inc., said during a May 16 earnings call. “We continue to see modest improvement in the U.S. economy and ongoing weakness in Europe.”