USA Unemployment Claims Rise Again

In yet another sign that the job market is still stuck in a rut, more Americans filed for first-time unemployment benefits last week than the week before.

There were 418,000 initial unemployment claims filed in the week ended July 16, the Labor Department said Thursday.

That marks an increase of 10,000 initial claims since the previous week, and more than the 411,000 claims economists surveyed by Briefing.com had expected.

A level below 400,000 is typically associated with payroll growth and a lower unemployment rate -- but claims have persisted above that level for 16 straight weeks.

Minnesota's government shutdown has weighed on the overall number for at least two weeks. Roughly 1,750 of the new claims filed last week were due to the statewide shutdown, the Labor Department said. In the prior week, Minnesota had reported about 9,681 claims as a result of the shutdown.

But the shutdown ended Wednesday, when Governor Mark Dayton signed a $35.7 billion budget, and state employees are slowly returning to work.

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New York also saw a huge influx of filings, due to the end of the school year.

More than 20,000 people in the state filed fresh unemployment claims in the week ending July 9 -- the most recent data available. Those employees included education contractors like bus drivers and cafeteria workers, but not necessarily teachers.

Layoffs in the auto industry were another major factor, as both Michigan and Ohio reported thousands of new claims.

"Auto production hasn't ramped up as quickly as we expected," said John Canally, economist with LPL Financial. "Claims are still stuck in no-man's land."

Where the Jobs Are

For the nation overall, the four-week moving average of initial claims --calculated to smooth out volatility -- fell. The average was 421,250 or 2,750 fewer claims than the week before.

Continuing claims -- which include people filing for the second week of benefits or more -- fell to 3,698,000 in the week ended July 9 -- in line with economists' forecasts.

The current unemployment rate is 9.2%

Debt ceiling: Moody's puts U.S. on notice

The public pressure on lawmakers to raise the debt ceiling was ratcheted up Wednesday when a major rating agency said it would put the sterling bond rating of the United States on review for possible downgrade.

Moody's Investors Services said it had initiated the review because of "the rising possibility" that Congress will fail to raise the debt ceiling by Aug. 2 -- something that could lead to a U.S. default on its debt.

If the debt ceiling isn't raised by then, the Treasury Department says it will no longer be able to pay all the country's bills in full and on time without being allowed to borrow new money. (Read: Debt ceiling FAQ)

"Moody's considers the probability of a default on interest payments to be low but no longer to be de minimis," Moody's said in a statement.

The United States enjoys its AAA rating in part for having always stood behind its debt and paid its bills on time. As a result, U.S. Treasury bonds are considered the world's safe-haven investment.

The Treasury Department issued an immediate response Wednesday.

"Moody's assessment is a timely reminder of the need for Congress to move quickly to avoid defaulting on the country's obligations and agree upon a substantial deficit reduction package," Treasury official Jeffrey A. Goldstein said in a statement.
Debt ceiling: Chaos if Congress blows it

In the still unlikely event the United States would default on any of its interest payments to bondholders, Moody's said it expected the default to be short-lived and the loss to bondholders "minimal or non-existent."

But, the agency added, a default "would fundamentally alter Moody's assessment of the timeliness of future payments." Translation: The United States would be downgraded to AA status.

Beyond the debt ceiling: Even if lawmakers raise the debt ceiling in time, Moody's also made clear that it is expecting progress on the long-term debt.

The agency said it would likely change its outlook on the AAA rating to "negative" from "stable" absent a "substantial and credible" debt-reduction deal.

Moody's had alerted investors in early June that it was considering putting the U.S. rating under review unless it saw forward movement in the debt talks by mid-July. It cited as a concern the "heightened polarization" in the debate.

Since then, negotiations led by Vice President Biden to find a compromise broke down and the prospects for a "grand bargain" have been called into question.

Market reaction: Just how the bond market -- i.e., the investors around the world who lend to the federal government -- will respond to Moody's action is not clear yet.

Bond traders may take note but not blink since the agency already signaled its intention -- "so no surprise factor," said Steve Van Order, a fixed income strategist at Calvert Investments.

And Moody's isn't the ultimate arbiter.

"The bond market will follow its own judgment of how Washington is approaching deficit reduction, not the decisions of the rating agencies," said Jim Vogel, head of interest rate strategies at of FTN Financial.

But, Vogel noted, "Moody's action will focus the market's attention on the debt ceiling more than it has been in recent days. Rating agency actions also may provide a rationale for policy makers to alter their voting stance as deadlines loom."
Bernanke: Default would cause 'major crisis'

Moody's isn't the first ratings agency to announce a negative action.

In April, Standard & Poor's revised its outlook on the country's AAA rating to negative from stable.

S&P's reason: Relative to its peers, the United States has "very large budget deficits and rising government indebtedness and the path to addressing these is not clear to us."

Fitch Ratings, meanwhile, said in early June that if lawmakers fail to raise the debt ceiling by Aug. 2, it would put the country on "ratings watch negative," meaning there is a "heightened probability" of a rating change.

New unemployment claims barely improve

The number of Americans filing for first-time unemployment benefits slipped only slightly last week, falling short of economists' expectations for a bigger drop.

There were 428,000 initial jobless claims filed in the week ended June 25 -- 1,000 fewer than the week before, the Labor Department said.

It marked the 12th straight week initial claims have stayed above the 400,000 mark -- and was worse than the 420,000 claims economists surveyed by Briefing.com had expected.

"Another week, another disappointing U.S. initial claims report," Jennifer Lee, senior economist with BMO Capital Markets said in a note to investors.

Lee pointed out that claims have been hovering at a level that offers little confidence that the job market's recovery picked up substantially in June. Slower auto manufacturing following Japan's earthquake could still be taking its toll, she said, and will hopefully let up later this summer.

The four-week moving average of initial claims, calculated to smooth out volatility, increased to 426,750, up 500 claims from the week before.

Fewer jobs for unemployed workers

Continuing claims -- which include people filing for the second week of benefits or more -- fell to 3,702,000 in the week ended June 18 -- also falling short of economists' forecasts for 3,700,000 ongoing claims.

California, New Jersey and Florida saw claims rise the most in the week ending June 18, the most recent data available.

Meanwhile, Ohio saw the biggest drop in unemployment claims, with 2,769 fewer people filing claims in that state. Illinois and New York followed, each with drops of 2,000 or more.

The Labor Department will release its closely watched monthly jobs report next Friday, detailing how many jobs the U.S. economy created in June.

May's report showed the economy added a disappointing 54,000 jobs that month -- far too low to bring down the unemployment rate.