WASHINGTON (Reuters) - The number of Americans filing new claims for jobless benefits fell last week and a trend reading hit a near five-year low, a sign the grinding recovery in the labor market remains on track.
Other data on Thursday showed a sharp drop in productivity in the fourth quarter due to weak economic output.
Initial claims for state unemployment benefits dropped by 5,000 to a seasonally adjusted 366,000, the Labor Department said.
That was a higher level than analysts had expected, although a downward trend in layoffs suggests the economy is strong enough that employers will need to add to their staffs.
“The labor market is improving, but certainly not at a robust rate by any means,” said Russell Price, an economist at Ameriprise Financial in Troy, Michigan.
The four-week moving average for new claims, a gauge of the trend in layoffs, dropped 2,250 to 350,500. That was the lowest level since March 2008.
However, while employers have pulled back on layoffs, they have only added jobs at a lackluster pace and the U.S. Federal Reserve is seen continuing its bond buying program into next year in order to lower borrowing costs and boost employment.
In a sign of the difficulty many people have in finding a job, the claims report showed the number of people still receiving benefits under regular state programs after an initial week of aid increased 8,000 to 3.22 million in the week ended January 26.
“It still shows that the U.S. job market is on a lethargic pace to recovery,” said Joe Manimbo, a market analyst at Western Union Business Solutions in Washington.
Claims were volatile in January due to the timing of holidays and the dates on which weeks ended, but a Labor Department analyst said some of that volatility appeared to be receding.
U.S. stock prices fell after several retailers reported mixed sales results in January, when consumers took a hit from higher payroll taxes. Prices on government debt rose.
Jobless claims: link.reuters.com/xew34t
A separate report showed U.S. nonfarm productivity fell in the fourth quarter by the most in nearly two years as output increased only marginally despite steady gains in employment.
Productivity declined at a 2 percent annual rate, the sharpest drop since the first quarter of 2011 and a larger fall than the 1.3 percent forecast in a Reuters poll.
Productivity is expected to rebound in the current period because analysts believe weak output during the fourth quarter was partially due to temporary factors like an unusually sharp decline in government spending on the military.
Data last week showed output in the economy contracted 0.1 percent in the fourth quarter, and analysts expect gross domestic product to return to growth early this year.
Unit labor costs - a gauge of the labor-related cost for any given unit of output - climbed at a 4.5 percent rate in the fourth quarter, beating analysts’ expectations of a 3 percent gain.
The gain in unit labor costs was driven by a jump in compensation for workers, a reading that includes wages as well as employer contributions to social insurance and private benefit plans like healthcare.
Hourly compensation rose at a 2.4 percent rate during the last three months of the year.
Higher wages can help fuel inflation, although many economists think slack in the economy is curtailing price pressures.
“We do not think this report is indicative of a meaningful increase in wage inflation,” said Daniel Silver, an economist at JPMorgan in New York.
Moreover, the report also showed gains in worker compensation are not keeping up with rising prices, a bad signal for the ability of households to boost consumption.
When adjusted for inflation, hourly compensation rose only 0.3 percent in the fourth quarter and was down 0.4 percent over the full year, the second straight annual decline.
Additional reporting by Herbert Lash and Gertrude Chavez-Dreyfuss in New York; Editing by Andrea Ricci