Jobs data show labor market improving

WASHINGTON (Reuters) - The number of workers filing new claims for jobless benefits fell last week, while private employers added jobs in May, further evidence the labor market was improving.

The data on Thursday came ahead of the government's closely watched employment report on Friday, which is expected to show non-farm payrolls increased 513,000 in May, buoyed by hiring for the decennial census, after a 290,000 increase in April. That would mark five straight months of job gains.

Initial claims for state unemployment benefits dropped 10,000 to a seasonally adjusted 453,000, the Labor Department said. That was a touch above market expectations for 450,000.

Separately, private employers added 55,000 jobs in May after increasing payrolls by 65,000 the prior month, an ADP Employer Services report showed. Though the ADP report was weaker than forecast, analysts said it offered evidence the labor market was getting better.

"I think these reports show the labor market is in fact stabilizing. ADP was slightly weaker than expected but it's still a nice jump from the prior month and foreshadows a good number tomorrow," said John Doyle, senior currency strategist at Tempus Consulting in Washington.

U.S. stock index futures showed little reaction to the data. Treasury debt prices were steady at lower levels, while the U.S. dollar was little changed.

Although the economy has now grown for three straight quarters following the worst downturn since the 1930s and the recovery is broadening, stubbornly high unemployment is eroding President Barack Obama's popularity.

It threatens to damage the Democrats at the midterm congressional elections in November.

While other indicators support views the labor market recovery is firming, claims for jobless benefits remain above levels usually associated with sustainable employment growth.

The number of people still receiving benefits after an initial week of aid unexpectedly rose 31,000 to 4.67 million in the week ended May 22, the highest since early April, the Labor Department said. The level was above market expectations for 4.60 million.

In a second report, the Labor Department said U.S. non-farm productivity growth was much slower than initially estimated in the first quarter as businesses started adding workers to maintain output.

Non-farm productivity rose at a 2.8 percent annual rate, instead of the previously reported 3.6 percent pace. It was the smallest advance in a year, following a 6.3 percent growth pace in the fourth quarter.

Analysts polled by Reuters had forecast productivity, which measures the hourly output per worker, rising at a 3.4 percent rate in the January-March period.

PRODUCTIVITY SLOWING

Following a rapid expansion in the previous three quarters as businesses squeezed more output from a small group of workers, productivity is slowing down and analysts expect the trend to continue as companies increase payrolls.

Some companies have held off hiring new workers, opting instead to add hours for the existing workforce, but analysts believe this policy cannot be adopted indefinitely

"When the recovery first started, businesses could get more out of their existing workforces, but that's becoming more and more difficult," said Gus Faucher, director of macroeconomics for Moody's Analytics in West Chester, Pennsylvania.

"We are starting to see employment pick-up so we expect to see productivity growth weaken and job growth pick up as a result."

The economy grew at an annual pace of 3.0 percent in the first quarter, slowing from a 5.6 percent rate in the fourth quarter.

Total non-farm output grew at a 4.0 percent rate in the January-March period, rather than the 4.4 percent pace previously reported, after a robust 7.0 percent pace in the fourth quarter, the Labor Department said.

Hours worked increased at a 1.1 percent rate, instead of 0.8 percent. The increase in hours was the highest since the second quarter of 2007 and marked an acceleration from the 0.7 percent pace in the fourth quarter.

Unit labor costs, a gauge of inflation and profit pressures closely watched by the Federal Reserve, fell a less steep 1.3 percent rather than 1.6 percent. That follows a 7.8 percent drop in the fourth quarter.

(Reporting by Lucia Mutikani, additional reporting by Burton Frierson; Editing by Andrea Ricci)