By Ros Krasny
CHICAGO (Reuters) - The number of Americans lining up for jobless benefits tumbled to the lowest level since January last week, but the decline was amplified by upheaval in the auto industry, while a key regional manufacturing index fell more than expected in July, reports showed on Thursday.
A jump in U.S. home foreclosures to a record high in the first half of 2009 highlighted the frailty of the U.S. economy at a time many forecasters see the nation poised to climb out of a deep recession that started in December 2007.
"This is going to be a bumpy ride for the next six months for the economy. We are going to have volatility in the data because they are not all going to all turn at the same time," said Kurt Karl, chief U.S. economist at Swiss Re in New York.
The day's reports had a muted impact on U.S. equities markets, with the Dow industrials and Nasdaq modestly higher in early afternoon and the S&P 500 posting small losses.
The Philadelphia Federal Reserve said its index of factory conditions in the U.S. Mid-Atlantic region fell to minus 7.5 in July from June's unexpectedly strong reading of minus 2.2. Analysts had expected a slightly smaller decline this month.
Any reading below zero shows contraction in the business sector in a region that spans eastern Pennsylvania, southern New Jersey and Delaware.
"The number is still in line with the Fed's forecast as we saw in the FOMC minutes, that the economy is not as bad as it looked earlier this year, and that we could be near the end of the recession," said Gary Thayer, senior economist with Wells Fargo Advisors in St. Louis, Missouri.
The Federal Reserve had released minutes of its Federal Open Market Committee were released on Wednesday.
Among the components of the Philadelphia index, perhaps the most closely watched regional manufacturing measure, employment slipped but new orders were less weak.
The report was termed consistent with views that the initial stages of a U.S. recovery will be far from robust.
"Overall, it is a mixed story. ... But when you look at the bottom line, it is that this index is negative and showing a contraction," said Rudy Narvas, senior analyst at 4CAST Ltd in New York.
JOBLESS SEASONALS DISTORTED
In news on the closely watched jobs market, the U.S. Labor Department said initial claims for state unemployment insurance fell 47,000 to a seasonally adjusted 522,000 in the week ended July 11.
The figure was much lower than expected, but was not seen as a sign of a sudden, sharp improvement in the labor market.
Claims were "massively distorted by the shift in timing of summer shutdowns," economists John Ryding and Conrad DeQuadros at RDQ Economics in New York said in a note to clients.
A Labor Department official said there had been far fewer seasonal layoffs than anticipated in early July in the automotive sector and elsewhere in manufacturing.
Many of the jobs typically shed for summer plant retooling were cut earlier, and in some cases permanently, as the industry slashed output in the spring to reflect extremely weak demand.
"The big drop is not necessarily a reflection of what is going on in the economy," the official said.
The Chicago Fed said recently that its index of Midwest automotive output was at the lowest in over 18 years.
The jobs report, however, still fed ideas that the worst of the U.S. labor market retrenchment is over, even if net job creation is months away.
"My first comment is, 'wow.' The expectation was that we'd see further improvement, and this data point suggests that businesses may have gone through the worst of their layoffs," said Alan Gayle, senior investment strategist at Ridgeworth Investments, Richmond, Virginia.
REALTY REALITY CHECK?
The effects of the weak labor market were seen on the rising rate of home foreclosures.
Foreclosure filings jumped to a record 1.9 million on more than 1.5 million properties in the first half of 2009, RealtyTrac reported.
James J. Saccacio, chief executive of RealtyTrac, said in a statement that unemployment-related foreclosures accounted for much of the increase.
Major U.S. bank JPMorgan Chase & Co warned on Thursday that rising unemployment will add to pressure on credit losses.
Credit quality for both mortgages and credit cards is weakening faster than expected, said the bank, which reported a surge in consumer credit losses for the quarter, even as its profit jumped.
And news from lender CIT Group that its bailout talks with the government had ended was another sign of pressure in the credit market. The news escalated fears of a potential bankruptcy by CIT, a major lender to retailers and many small and mid-sized businesses.
But in a positive note on the housing market, which is seen key to an economic recovery, the National Association of Home Builders said U.S. home builder sentiment in July jumped to its highest level since September 2008.
In the mortgage market, average interest rates fell to 5.14 percent for the popular 30-year fixed rate in the week ended July 16, a third straight weekly decline, said home funding company Freddie Mac.
(Additional reporting by Lynn Adler, Julie Haviv and Burton Frierson in New York, and Alister Bull in Washington; Editing by Leslie Adler)