Jobs, store sales soft but homes data brighter

By Alister Bull Thu Aug 7, 4:40 PM ET

WASHINGTON (Reuters) - New claims for U.S. jobless aid rose last week and big retailers had disappointing sales in July, reports showed on Thursday, but a gauge of future home sales rose in a hopeful sign for the battered housing sector.

The higher-than-expected June signings of home sale contracts offered some hope the housing market may be stabilizing. But the jobless claims and Wal-Mart's weaker-than-expected July sales boosted concerns about consumer spending and the corporate profit outlook, sending U.S. stocks lower and U.S. government bond prices higher.

Initial claims for state unemployment benefits rose 7,000 last week to 455,000, the highest in six years, the Labor Department said. But it said a new federal program to extend benefits was partly to blame for the elevated level.

Still, the four-week moving average of claims, designed to iron out weekly fluctuations and provide a better view of the underlying trend, also showed that jobs were tough to find as the economy copes with the worst housing downturn since the Great Depression.

"Look past the choppiness and bias in the data and what you'll see is a fundamental weakness in the labor market," said Michelle Meyer, an economist at Lehman Brothers in New York.

"We'll see the unemployment rate peaking at 6.3 percent next year," she said. It hit 5.7 percent in July.

The four-week average of new claims jumped to 419,500 from 392,750 the previous week. This was the highest since July 2003 and the first time since that year that the four-week moving average breached 400,000 -- a threshold linked with recession.

CONSUMERS LOSING SUPPORT

U.S. economic growth has faltered amid falling home prices, which also pushed up unemployment.

An emergency government stimulus package helped lift the economy in the second quarter, but weaker-than-expected sales from the world's largest retailer, Wal-Mart Stores Inc (WMT.N), indicated the money might be running out.

"With the end of the stimulus checks, we know consumers are spending more cautiously, and we continue to see a pronounced paycheck cycle at the end of the month," said Eduardo Castro-Wright, head of Wal-Mart's U.S. operations, referring to consumers who spend only with fresh money in their pockets.

Wal-Mart said sales at U.S. stores open at least a year rose 3 percent, shy of Wall Street expectations of a 3.4 percent gain. Other retailers also reported disappointing sales. (For details see, )

U.S. comparable chain store sales rose 2.6 percent last month from a year earlier, buoyed by a 9.5 percent surge in sales at wholesale clubs, which helped offset weakness in apparel, department, furniture and luxury stores.

Democratic politicians, who are campaigning win back the White House and consolidate their grip on Congress in November's elections, have said the weak economy warrants a second stimulus package. Republican leaders don't agree.

Housing lies at the heart of U.S. economic problems and the rise in the pending home sales index, which is based on contracts signed in June, was a welcome bit of good news.

"This is telling us that sales have stabilized. This raises some hopes that we've flattened out, which doesn't mean the problem is solved," said Pierre Ellis, senior global economist at Decision Economics in New York.

The 5.3 percent rise in the index brought it to 89.0, its highest since October.

Not everyone was convinced it was a sign of strength.

"We have to see how much of that is attributable to bank-owned properties or foreclosures, which seem to be driving the markets right now," said Andrew Richman, managing director at SunTrust's Personal Asset Management Division in West Palm Beach, Florida.

"There are some bottom feeders coming in to buy some of these homes in distressed situations," he said. "How long that will last I don't know."

A separate report released later on Thursday signaled that Americans were turning to credit cards and consumer loans to maintain spending in the face of rising living costs.

June consumer credit rose $14.33 billion, or at a 6.7 percent annual rate, to $2.586 trillion, the Federal Reserve said. Analysts polled by Reuters expected a $6 billion rise.

(Additional reporting by Glenn Somerville and Nancy Waitz in Washington, and Nicole Maestri, Julie Haviv and Richard Leong in New York; Editing by Neil Stempleman)