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%

Greece: Back from the brink

Greece has pulled itself back from the brink, by agreeing to a painful austerity package aimed at reducing the country's giant budget deficits.

On Thursday, the Parliament voted to implement those unpopular reforms. The vote set the stage for the nation to secure the final $17 billion of a $156 billion international relief package.

The latest cash infusion means Greece will be able to stave off an immediate default and pay its bills for the next three months.

But Greece is not out of the woods. The country still needs to put the unpopular reforms into practice, negotiate with creditors and privatize big public institutions.

Passage of the austerity plan "will certainly give some short-term relief to markets," said IHS Global senior economist Diego Iscaro. "But concerns about the long-term feasibility of Greece's fiscal plans still remain in place."

Greece is now expected to begin negotiations with the European Union and International Monetary Fund for another bailout, said Wolfango Piccoli, a director at the Eurasia Group in London.

The next round of emergency aid is expected to range between $172 billion and $216 billion, which would cover Greece's expenses through 2014, he said.

As with the previous deal, the new package will come with conditions. The terms are expected to include some concessions by Greece's creditors and the transfer of state assets to the private sector.

But providing more short-term support for Greece "is just kicking the can down the road," Piccoli said.

Officials in Europe are hoping to keep Greece solvent long enough to allow other troubled European nations to strengthen and put pressure on Greece to enact the painful reforms passed Wednesday.

At the same time, the European Union is working with Greece's main creditors -- French and German banks -- to roll over some of the nation's debt into longer-term bonds.

"It's unclear how that will be done, though there seems to be some willingness there," on the part of the banks, said Piccoli. "But that's just another measure to gain time, it doesn't diminish the amount of debt that Greece will be left with."

The bottom line is that Greece's ability to repay its debts remains in question.

"For all economic intents and purposes, Greece has already defaulted," said Sandeep Dahiya, professor of finance at Georgetown's McDonough School of Business. "There's no way Greece can repay all the money it owes."

The big worry is that other debt-laden nations in Europe -- particularly Ireland, Portugal, Italy and Spain -- would be dragged down if Greece were to default in a disorderly way.

But the threat to the U.S. economy, for now, remains remote.

That's mainly because U.S. banks have relatively little Greek debt on their books and the financial markets have largely priced in Greece's fiscal problems, which have been playing out for over a year.

Nevertheless, the situation remains highly uncertain.

Greece austerity: Cure or poison?

"We're still not sure how much exposure there is," said Gus Faucher, an economist at Moody's Analytics. "There is certainly the potential for a big problem in the U.S. if Greece were to default unilaterally."

While he believes that's unlikely, Faucher said an outright default by Greece could cause a financial shock similar to the one that occurred after Lehman Brothers collapsed in 2008.

The investment bank's implosion roiled global financial markets and caused a severe credit crisis.

Analysts say U.S. money market funds, which hold an estimated 40% of their assets in various forms of European debt, would be the most vulnerable in such a scenario.

The pain of Greece's crisis

Ben Bernanke, chairman of the U.S. Federal Reserve, said last week that the central bank is looking into how exposed U.S. money market funds are to Greece. He acknowledged that the indirect exposure could be "very substantial," but sounded hopeful that the worst won't come to pass.

In addition, some U.S. investment banks and insurance companies could be on the hook if they own credit default swaps linked to European debt.

These complex derivatives, which crippled US insurance giant AIG after Lehman fell, could also yield big profits for investors betting against Europe.

However, the market for credit default swaps is opaque and analysts say it's impossible to pinpoint how exposed U.S. institutions may be to them.

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.