Initial claims for unemployment increased 12,000 last week to 500,000, according to the Labor Department. This is the fourth straight increase in the last five weeks. The four-week average increased 8,000 to 482,500, the highest since December. Jobless claims decreased steadily after a peak of 651,000 in March 2009 as the economy began to recover, but after flattening out earlier this year, claims have begun to grow again. “This is obviously a disappointing number that shows ongoing weakness in the job market,” said Robert Dye, senior economist at the PNC Financial Services Group. The increase shows that the economy is creating even fewer jobs now than in the first half of this year. The jobless rate has been stuck at 9.5 percent for two months. The Labor department also announced that the number of people continuing to receive benefits fell by 13,000 to 4.5 million (continuing claims data lags initial claims by one week). However, that doesn’t include people receiving extended unemployment insurance which is paid for by the federal government. During the week ending July 31, the latest data available, 5.6 million unemployed workers were on the extended unemployment benefit rolls which is an increase of about 300,000 from the previous week.
During the recession, Congress added up to 73 extra weeks of benefits on top of the 26 weeks customarily provided by the states. The number of people on the extended rolls has increased sharply after Congress renewed the extended program in July after it had expired in June. Private employers added 71,000 jobs in July, but there was a loss of 202,000 government jobs, including 143,000 temporary census positions. July marked the third straight month that the private sector hired cautiously. Economists are concerned that the slow economic growth will cause the unemployment rate to rise again. In a healthy economy, jobless claims usually drop below 400,000. However, recent increases in claims provide further evidence that the economy is slowing and may slip back into a recession. Many analysts are worried that economic growth will ebb further in the second half of this year.

The Congressional Budget Office estimated that the federal budget deficit will surpass $1.3 trillion in 2010. This deficit amount will be the second largest shortfall in the past 65 years. The updated deficit projection is $71 billion below last year’s total and would be $27 billion lower than March‘s estimate. In 2010 the deficit is expected to be 9.1% of the U.S. gross domestic product. The Congressional Budget Office calls growth in U.S. output as “anemic”. The CBO projects that the economy will grow by 2% from the fourth quarter of 2010 to the fourth quarter of 2011 and that the jobless rate won’t fall back to around 5% until the end of 2014. Congressional budget analysts also estimate that the huge deficit will fall steadily as a share of GDP over the next few years assuming their hypothesis about fiscal policy, including expiring tax-cuts, come to pass. Based on the CBO’s estimate, the deficit would drop to 7% of GDP in 2011, 4.2% of GDP in 2012 and reach as low as 2.5% of GDP in 2014.

Statistics Canada reported that Canadian retail sales increased 0.1 percent after two months of declines. June’s retail sales increased slightly as falling gasoline prices partly offset strong demand for vehicles, household goods and building materials. Analysts had expected sales to rise 0.4 percent. Statscan also revised its May figures to show a decline of 0.4 percent instead of the decline of 0.2 percent as initially reported. The good news was sales volume, which jumped 0.9 percent. Consumer spending was the driving force behind Canada’s rapid recovery from a mild recession, with growth averaging 5.5 percent, annualized, over the previous two quarters. That pace is expected to slow to about 2.5 percent in the second quarter. The Bank of Canada anticipated a cooling of consumer spending into its outlook and is unlikely to alter its interest rates. The central bank raised its rate in both June and July. The market is split on its next move on Sept. 8, but primary securities dealers expect it to lift rates again to a reasonable 1.0 percent.

The Commerce Department announced that sales at U.S. retailers increased 0.4% in July to a seasonally adjusted $362.7 billion. This is the first increase in two straight monthly declines. Sales fell an upwardly revised 0.3% in June. Most of the gain came from autos and gasoline. Excluding these two sectors, retail sales were down 0.1% in July. Excluding the 1.6% rise in motor vehicle sales, retail sales rose 0.2% to $299.7 billion, in line with expectations.

The Federal Reserve reported that factory output increased 1.1 percent last month, which is the biggest increase since August 2009. Overall output at the nation’s factories, mines and utilities rose 1.0 percent last month. That followed a decline of 0.1 percent in June, the first drop in more than a year. Construction of new homes and apartments rose 1.7 percent last month, driven by a 32.6 percent surge in apartment and condominium construction, a small fraction of the market.

Single-family home construction, representing 80 percent of the market, slid 4.2 percent. Requests for building permits, a sign of future activity, decreased 3.1 percent to a seasonally adjusted 565,000, the slowest pace since May 2009, the Commerce Department said.

In a separate Indicator, the Labor Department announced that wholesale prices increased in July as the cost of food, cars and light trucks increased. Excluding volatile food and energy costs, main producer prices rose 0.3 percent in July, the ninth straight increase. Businesses are hiring fewer workers as the unemployment rate for July was 9.5 percent with no expectation for a decrease.

U.S. consumer sentiment increased in August slightly to 69.6 from 67.8 in July, the survey’s lowest level since November 2009, according to the Thomson Reuters/University of Michigan’s Surveys of Consumers. The sentiment index is only several points above where it was in 2009 as consumers worry about job growth and income. “The gain was too small to represent a meaningful improvement,” Richard Curtin, director of the surveys, said in a statement. “Consumers have increasingly come to expect lackluster income and job growth for an extended period of time.” The survey’s barometer of current economic conditions increased 78.3 in August from 76.5 in July, while expectations were for it to remain unchanged. The survey’s gauge of consumer expectations rose to 64.1 from 62.3 in July. Analysts had predicted a reading of 63.7. The measure on consumers’ 12-month economic outlook edged up to 69 from 66 in July. The survey’s one-year inflation expectations measure inched up to 2.8 from 2.7 in July.

The Labor Department reported that U.S. worker productivity declined at an annual rate of 0.9 percent in the April-to-June quarter after posting large gains throughout 2009. Unit labor costs edged up 0.2 percent in the second quarter, the first increase since the spring of 2009.

Productivity had risen during the recession as companies laid off workers and asked those still working to do more with less help. Economists said a slowing in productivity would be welcome if it translates into more hiring.

In 2009, productivity rose 3.5 percent, the highest increase in six years and a reflection of companies’ ability to produce more with fewer workers. The 0.9 percent drop in productivity in the second quarter was the first decline since a 0.1 percent dip in the fourth quarter of 2008. It was the biggest fall since a 1.3 percent decrease in the third quarter of 2008.

The Federal Reserve is trying to keep money cheap and announced that it would buy long-term Treasury securities. This is similar to the move it made in 2007 when it bought $1.25 trillion in mortgage-backed securities, and another $200 billion in debts owed by government-sponsored enterprises, primarily Fannie Mae and Freddie Mac. The Fed had planned to allow the size of that portfolio to shrink gradually over time as the debts matured or were prepaid. Instead, it will use that money to buy longer-term Treasury securities. This largely symbolic action sends a signal that the Fed sees the recovery weakening and that it stands ready to take more aggressive action, if needed, to keep it on track.

Investor’s Business Daily and TechnoMetrica Market Intelligence released a consumer confidence report finding that Americans are more pessimistic in August. The IBD/TIPP Economic Optimism Index dropped to 43.6 in August from 44.7 in July. Readings above 50 indicate optimism, while those below 50 point to pessimism. The index is at the lowest level since October 2008, 3.8 points below its 12-month average of 47.4, and 0.8 points below the 44.4 level IBD reported in December 2007 when the recession began. “The failure of government programs to bring about a promised turnaround in the job market seems to have soured many Americans on current stimulus and bailout efforts,” said Terry Jones, Associate Editor of Investor’s Business Daily. Consumers remain uncertain about their household finances in the next six months. The gauge’s personal financial outlook measure dropped 3.3 percent in the month to 49.2. The index’s six-month economic outlook component improved 5.4 percent to 45.1 and is now 13 points above its level in December 2007. The IBD/TIPP surveys more than 900 adults generally in the first week of the month.

In an interview with ABC’s Good Morning America, Treasury Secretary Timothy Geithner, said the unemployment rate could rise for a couple of months before it goes down. “It’s possible you’re going to have a couple of months where it goes up,” Geithner said. “But what we expect to see … is an economy that’s gradually healing, of course we want to do what we can to reinforce that process because it’s not growing back as quickly as we’d like.” Reuters economists predict that the unemployment rate rose to 9.6 percent in July from 9.5 percent in June, this is ahead of the July report which will be released on Friday. There are some positive signs emerging in the private sector, said Geithner, in an opinion piece in the New York Times. “While the economy has a long way to go before reaching its full potential, last week’s data on economic growth show that large parts of the private sector continue to strengthen,” he said. “We have a long way to go to address the fiscal trauma and damage across the country, and we will need to monitor the ups and downs in the economy month by month,” Geithner wrote.

The Commerce Department reported that consumer spending and incomes were unexpectedly flat after rising 0.1 percent in May. There was a 2.4 percent economic growth pace in the second quarter due to sluggish consumer spending and the economy expanded at a 3.7 percent rate in the first three months of this year. While the economy has grown for four straight quarters, the recovery has been crawling along and has not impacted the high unemployment rate. “We’re still dealing with a stunningly high unemployment rate and very little job growth so it shouldn’t be much of a surprise that spending patterns are looking soft,” said Tom Porcelli, U.S. Economist at RBC Capital Markets in New York. The Commerce Department reported that in June, spending adjusted for inflation rose 0.1 percent after gaining 0.2 percent in May. Real spending on services edged up 0.1 percent, while spending on goods rose 0.2 percent. Personal income was flat after increasing 0.3 percent in May. This was the first time since September that incomes had not risen. Real disposable income increased 0.2 percent after rising 0.4 percent the prior month. The saving rate was 6.4 percent, the highest since June last year, from 6.3 percent in May. Savings rose to an annual rate of $725.9 billion, the highest level since June last year.

Canadian retail sales unexpectedly fell 0.2 percent in May for the second straight month said Statistics Canada. Excluding the auto sector, sales decreased 0.1 percent, while sales in volume terms rose 0.4 percent, following an upward trend since the start of 2009. Reuters forecasted a 0.4 percent decrease in retail sales in May. Statistics Canada revised April’s month-on-month fall to 2.2 percent from an initially reported 2.0 percent decline. Two of the largest declines in the month were at gasoline stations, down 2.3 percent, and the building material and garden equipment supplies sector which fell 4.1 percent. “This is a much better report than the headline suggests for two reasons,” said Scotia Capital’s Derek Holt and Gorica Djeric in a note to clients. “First, the dollar value of retail sales, excluding autos and gasoline station sales, actually climbed 0.2 percent so it was gas prices that distorted the headline and the core sales measure that only subtracts autos.” Of the five sectors that registered gains in May, the largest increase was a 2.6 percent jump at clothing and clothing accessories stores.