WASHINGTON (Reuters) - The number of workers filing new applications for unemployment benefits unexpectedly rose last week for the first time since early April, suggesting the labor market recovery has hit a stumbling block.
But a rise in manufacturing activity in the nation's Mid-Atlantic region this month offered assurance the economic recovery remained on track, even though a gauge of future strength slipped for the first time in 13 months in April.
Initial claims for state unemployment benefits increased 25,000 to a seasonally adjusted 471,000, the highest level since the week ended April 10, the Labor Department said on Thursday. Markets had expected a drop to 440,000.
"It raises the risk that non-farm payrolls might slow down from some of the recent strength. Given the reduced confidence people are having in the economic outlook it just adds to those fears," said David Sloan, an economist at 4CAST in New York.
The claims data fell in the survey week for the government's closely watched employment report for May, which will be released on June 4.
Separately, the Philadelphia Federal Reserve Bank's index of mid-Atlantic business activity rose to 21.4 from April's 20.2, a touch below market market expectations for 22.0. Any reading above zero indicates expansion in the region's manufacturing.
The Conference Board's index of U.S. leading economic indicators slipped 0.1 percent last month, surprising analysts who had been looking for a 0.2 percent gain, a third report showed. It was the first drop since March 2009.
"The modest slowing in factory activity this month could have reflected caution on the part of firms, notably exporters worried about the escalation of the European debt crisis in the first half of this month. Forward-looking gauges remained in solid territory," said Omair Sharif, an economist at RBS in Stamford Connecticut.
STOCKS FALL
The disappointing reports took a toll on U.S. stocks, already reeling on concerns Europe's debt crisis could put a damper on U.S. economic recovery. The broader Standard & Poor's 500 index <.SPX> slipped further into negative territory for the year.
Prices for U.S. government debt rallied, tapping a safe-haven bid, and the yield on the benchmark 10-year note touched a 5-1/2 month low. The U.S. dollar dropped to session lows versus the euro and the yen.
The manufacturing-led recovery from the longest and deepest recession since the 1930s has been plagued by stubbornly high unemployment, creating a political headache for President Barack Obama and his fellow Democrats.
The near 10 percent unemployment rate could cost the Democratic Party its majorities in both houses of Congress in November's elections.
Last week, the four-week moving average of new claims, which is considered a better measure of underlying labor market trends, rose 3,000 to 453,500. The Philadelphia survey also had unsettling details on the labor market, with the employment component falling to 3.2 from 7.3 in April.
New applications for unemployment benefits had been grinding lower only at a slow pace, even though payrolls have now grown for four straight months.
Analysts believe the elevated level of initial claims indicates the unemployment rate, which hit 9.9 percent in April, will remain high for a while and only come down gradually as small businesses are still struggling.
The number of people still receiving benefits after an initial week of aid fell 40,000 to 4.63 million in the week ended May 8, the Labor Department said.
The level was above market expectations for 4.60 million, but was the lowest since late March.
The insured unemployment rate, which measures the percentage of the insured labor force that is jobless, was unchanged at 3.6 percent in the week ended May 8. It was the fifth straight week that the rate was unchanged at that level.
(Reporting by Lucia Mutikani, additional reporting by Pedro Nicolaci da Costa and Burton Frierson, Editing by Chizu Nomiyama)
