Jobs in United States scarce

A sign that jobs likely will remain scarce through next year emerged Thursday in a report showing a record number of Americans receiving unemployment aid.

WASHINGTON — A sign that jobs likely will remain scarce through next year emerged Thursday in a report showing a record number of Americans receiving unemployment aid.

And plant shutdowns by Chrysler LLC and General Motors Corp. could further harm the economy in coming months.

Economists are just starting to assess the full impact of the auto industry’s woes, which affect thousands of suppliers and dealers.

The number of people who are continuing to receive jobless benefits rose to nearly 6.7 million from about 6.6 million, the U.S. Labour Department said. That’s the highest total on records dating to 1967 and the 16th straight weekly record.

New jobless claims fell to a seasonally adjusted 631,000 last week, down from a revised figure of 643,000 the previous week. First-time claims, which had dropped to 605,000 earlier this month, reflect the pace of layoffs.

The financial markets reacted sourly to the jobs report, with the Dow Jones industrial average dropping nearly 130 points. Broader averages also fell.

Factory closings by Chrysler and GM, most of them temporary, probably will boost the number of jobless claims into the summer, economists said. The plant closings also are likely to cause layoffs at auto suppliers, which employ about three million workers.

“We expect that the auto shutdowns will be lifting claims for the next couple of months,” said Dean Maki, an economist at Barclays Capital.

Claims had jumped two weeks ago as Chrysler idled its factories after filing for bankruptcy protection. That move put up to 27,000 hourly employees out of work.

GM, meanwhile, is suspending work at 13 factories on a rolling basis over the next two months.

Among the most bearish outlooks comes from Joseph LaVorgna, chief U.S. economist at Deutsche Bank, who said the auto-plant closings could push weekly new jobless claims as high as 700,000.

Tim Stannard, a United Auto Workers official, represents a GM plant in Spring Hill, Tenn., that will close for five weeks starting June 1. The factory, which employs 3,200 workers, could be one of 16 that GM plans to close permanently.

“Right now, we’ve been told we’re coming back to work,” Stannard said. “Everyone’s on pins and needles.”

The shutdown of the 16 plants would cost 21,000 workers their jobs, reducing GM’s hourly work force to 40,000.

Chrysler has said it will shut eight of its 25 U.S. plants permanently as part of its bankruptcy reorganization. The rest are expected to reopen by the end of June.

GM faces a June 1 deadline to agree with the UAW and its bondholders on a restructuring plan or be forced into bankruptcy protection, too. The UAW said Thursday it has reached an agreement on cutting costs with the company and the government, which has lent GM $15.4 billion. Details weren’t released.

GM and Chrysler also have announced they will sever their contracts with around 2,000 dealerships nationwide. The likely result will be shutdowns for many. The National Automobile Dealers Association, a trade group, said the automakers’ action could produce 100,000 job losses.

Even with the auto industry’s woes, many analysts expect the economy to recover and start growing slightly by the fall.

Abiel Reinhart, an economist at JPMorgan Chase & Co., said the auto sector “won’t be a big enough drag to really change the big picture,” particularly since many of the layoffs are temporary.

But economists also acknowledged uncertainty about the impact.

Joel Naroff, president of Naroff Economic Advisers, said the most critical decisions will come after the temporary shutdowns have ended. Namely: Will GM and Chrysler ramp up production, or hold back?

The industry’s struggles are “clearly a negative” for the economy, Naroff said. “But the extent of the impact is unclear.”

The shutdowns also will likely cause layoffs at the 5,000 U.S. auto supply companies. Trade groups representing the suppliers have pushed for more help from the government.

The Obama administration’s auto industry task force began a $5-billion support program to help the suppliers in April. But the program finances the sale of parts already ordered by the auto companies. That doesn’t help when orders are drying up, industry representatives say.

Overall, while the pace of layoffs may slow, hiring remains weak, and the unemployment rate will keep rising, economists said. Based on Thursday’s data, Reinhart predicts the jobless rate could hit 9.2 per cent or higher in May, up from 8.9 per cent in April.

But the economic news was not all bad. In a separate report, a private research’s group forecast of economic activity rose more than expected in April. It was the first gain in seven months.

The Conference Board says its index of leading economic indicators rose one per cent last month. Economists surveyed by Thomson Reuters had expected a 0.8 per cent increase in the index, which is designed to forecast economic activity in the next three to six months.

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