WASHINGTON (Reuters) –
U.S. weekly jobless claims plummeted last week but the improvement was probably a seasonal quirk rather than a turning point for the recession-ravaged labor market.
Separate reports on Wednesday on business activity in New York City and Milwaukee showed no sign of a recovery, while 30-year fixed mortgage rates eased for the ninth consecutive week as official efforts to bolster the housing market appeared to gain traction.
Although the government reported the biggest drop in jobless claims since 1992, economists said the data did not reflect a change in the labor market which has been weakening for a year.
"We have once again entered a silly season for (jobless) claims," said JPMorgan economist Abiel Reinhart.
Initial claims for state unemployment insurance benefits fell 94,000 to a seasonally adjusted 492,000 in the week ended December 27 from an unrevised 586,000 the prior week, the Labor Department said.
It was the lowest reading for initial claims since the week ended November 1 and well below the 565,000 new claims analysts had expected, according to a poll by Reuters.
"Economic conditions have been difficult and unemployment claims remain higher than anyone would want to see," said White House spokesman Tony Fratto.
The government and U.S. Federal Reserve has pumped hundreds of billions of dollars into the economy to support banks and restore consumer spending.
Yet a yearlong U.S. recession has already destroyed 2.7 million jobs while pushing the country's unemployment rate up to 6.7 percent, with many economists expecting it to advance well above 8 percent in 2009.
A Labor Department official said the timing of the year-end holidays and volatility in factors used to seasonal adjust the data was likely to blame for the large decline in initial weekly claims, and he warned this situation could persist for several more weeks.
"The numbers seemed unbelievable but the states certified they were correct," the Labor Department official said.
Prices on U.S. government bond, which usually fall on signs of economic strength, extended losses on the drop in claims while major stock indexes gained more than 1 percent.
"The bottom line here is that it probably won't be until mid-January that we begin to get a clear picture of what claims are saying. Until then it is best to focus on the four-week average," said Reinhart, the JPMorgan economist.
The four-week average of new jobless claims, a better gauge of underlying employment trends because it irons out week-to-week volatility, dropped to 552,250 from 558,000 the week before.
The number of people remaining on the benefits roll after drawing an initial week of aid rose 140,000 to a more-than-forecast 4.506 million in the week ended December 20, the most recent week for which data is available.
This was the highest since the week ended December 4, 1982, when continued claims were 4.509 million. Analysts estimated continued claims would be 4.430 million.
In separate reports, the National Association of Purchasing Management-New York's index of business activity was little changed in December, but managers were a little less pessimistic.
A report from the Institute for Supply Management-Milwaukee showed business activity in the region contracted for a 10th straight month, and the pace of the decline accelerated.
Both of the regional reports showed employers continue to chop payrolls.
Government-backed mortgage giant Freddie Mac said 30-year fixed mortgage rates fell to 5.10 percent from 5.14 percent the week before, notching the third consecutive all-time low since records began in 1971.
The U.S. Federal Reserve said on Tuesday it plans to spend $500 billion on mortgage securities in the next six months in a bid to cut lending rates for home loans. Mortgage rates have tumbled since the Fed announced the program last month.
The drop in mortgage rates has sparked a recent flurry of demand for home loans, with applications holding at a five-year high last week, according to a report by the Mortgage Bankers Association.
However, economists cautioned that a surge in interest in mortgages will not necessarily translate into demand for housing, as most of the applications have been to refinance existing mortgages.
(Additional reporting by Julie Haviv and Chris Reese in New York, Ros Krasny in Chicago and Jeremy Pelofsky in Washington)
(Editing by Tom Hals)