Page last updated at 17:25 GMT, Thursday, 4 September 2008 18:25 UK

Job market jitters add to US woes

Shoppers in Arkansas
Workers' productivity was better than expected in the second quarter

More downbeat news on the US job market has added to economic jitters despite, glimmers of hope from data on the country's service sector.

An unexpected rise in new applications for unemployment benefits unnerved some ahead of Friday's jobless data.

Meanwhile reports by many retailers of sluggish sales in the back-to-school period added to woes.

However the US service sector grew in August, beating expectations, according to the Institute for Supply Management.

The ISM's non-manufacturing index registered 50.6 in August from 49.5 in July. A figure above 50 denotes growth.

'Perfect storm'

The Labor Department said new applications for unemployment insurance rose by 15,000 from the previous week - going against expectations of a fourth week of falls.

"The initial jobless claims number was higher than expected," said Dave Rovell of Canaccord Adams.

"Everybody is worried about the unemployment number (which comes out on Friday). It's just a perfect storm."

Among retailers, Wal-Mart saw higher August sales which analysts put down to its heavy discounts as customers looked for bargains amid high food and fuel prices.

But others such as Wet Seal Inc, Abercrombie & Fitch and Saks struggled.

Inflation risk

Separate ISM data showed productivity better than forecast in the second quarter, while labour costs declined, official data showed.

The figures suggest the world's largest economy is in better shape than had previously been thought.

Productivity - the amount of output for every hour worked - climbed to an annual rate of 4.3% in the three months to June, the Commerce Department said.

In the first three months of the year, productivity rose 2.6%.

Simultaneously, labour costs dropped to 0.5% on a yearly basis, reversing the rise seen in the three months to March when they were 1.2% higher.

For employers, if labour costs rise quicker than productivity, it can contribute to quickening inflation.

The productivity data was viewed positively by analysts, who argue it helps keep a check on inflation at a time when firms are facing a sharp rise in costs.

Economic uncertainty

The latest figures reinforce the view held by some analysts that the US might have seen the worse of the downturn, while Europe is still being squeezed.

In August, figures showed the world's largest economy expanded at a revised rate of 3.3% annually during the second quarter of 2008, much higher than its first estimate of 1.9%.

But there is still much uncertainty surrounding the outlook for the US economy.

Only a day earlier, on Wednesday, the US central bank said the economy faced slow growth and higher prices.

The Federal Reserve's so called Beige Book report said economic activity was "weak, soft or subdued" in the US, as consumers tightened their belts.

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