U.S. economy shows signs of improvement

General Motors assembly workers Monique Watson (L) and Evetta Osborne install an electric battery on the underside of a 2011 Chevrolet Volt electric vehicle at the Detroit-Hamtramck Assembly plant in Hamtramck, Michigan November 30, 2010.

WASHINGTON (Reuters) - The number of Americans filing new claims for jobless benefits dipped last week and the U.S. trade deficit narrowed slightly in August, signs that point to a slight strengthening in growth.

Initial claims for state unemployment benefits edged down 1,000 to 404,000, the Labor Department said on Thursday. Just four weeks earlier, new claims stood at 432,000.

A separate report from the Commerce Department on the trade balance bolstered views that the economy likely grew at around a 2 percent annual rate in the third quarter, too weak to pull down the unemployment rate but a far cry from recession.

U.S. GDP has expanded at just a 1.3 percent rate in the second quarter, fueling fears growth could be stumbling badly.

"These reports add to the recent flow of encouraging economic releases, which have been pointing to an economy that has not only averted a second recession, but one that may be slowly regaining some positive momentum," said Millan Mulraine, senior macro strategist at TD Securities in New York.

Data ranging from manufacturing to employment suggest the economy continues to plod along, but analysts warn that Europe's inability to come to grips with its debt crisis could drag the United States into a new recession.

A Reuters survey released on Thursday showed economists see a one-in-three chance of a new downturn, down only marginally from a September poll.

The economic news did not appear to have a large impact on on Wall Street. The Dow and S&P 500 stock gauges were lower near the end of the trading session while the Nasdaq rose slightly. Traders saw a drop in quarterly profit at JPMorgan Chase & Co. and soft economic data from China as signs of a global slowdown.

Prices for U.S. government debt moved higher, while the dollar was little changed against a basket of currencies.

TRADE TO SUPPORT GROWTH

The trade report showed the deficit edged down to $45.61 billion in August from $45.63 billion the prior month, as both exports and imports receded slightly. Economists said a narrowing of the trade gap could add as much 0.4 percentage point to third-quarter gross domestic product.

"It seems that the technical rebound of the U.S. economy that we have been expecting for months has materialized after all, despite the gloomy messages sent by survey-based confidence indicators," said Harm Bandholz chief U.S. economist at UniCredit in New York.

The tepid pace of the U.S. recovery has left the Federal Reserve searching for more ways to boost output and lower an unemployment rate stuck above 9 percent. It has already cut overnight lending rates to near zero and pumped abut $2.3 trillion into the economy.

Fed officials last month discussed a range of steps they could take if the economy were to weaken further, including further bond purchases and giving more information on their goal for unemployment, minutes of the meeting released on Wednesday showed.

However, analysts do not expect the Fed to take further action at its next meeting in November, given signs of firmer third-quarter growth, including a recent quickening in the pace of job creation.

The Obama administration, which has set a goal of doubling U.S. exports to around $3 trillion by 2014, is counting on stronger export growth to help lift U.S. employment.

While the overall trade deficit narrowed in August, the shortfall with China hit a record $29.0 billion, which could hand ammunition to U.S. lawmakers who support legislation to crack down on Beijing's currency policies.

The U.S. Senate on Tuesday approved a bill aimed at forcing China to raise the value of the yuan, but Republican leaders in the House of Representatives have signaled opposition to the measure, which may never reach a vote in the chamber.

LAYOFFS EASING

Boosting exports would help to address the stubbornly weak labor market, where the unemployment rate has held at 9.1 percent for three straight months.

Economists are cautiously optimistic job creation will gather momentum, and pointed to the moderation in layoffs evidenced by the drop in claims for state jobless benefits.

First-time claims have circled around the 400,000 mark that is usually associated with some improvement in the jobs market for three straight weeks. In addition, a four-week moving average, considered a better measure of labor market trends, fell 7,000 to 408,000 last week.

"This is good news because the trend in jobless claims had risen steadily from mid-August to mid-September, which pointed to a potential pickup in layoffs," said John Ryding, chief economist at RDQ Economics in New York.

"However, initial claims need to fall decisively below 400,000 to suggest that payroll growth has picked up to a rate that could be described as solid."

(Additional reporting by Jason Lange; Editing by Kenneth Barry)