Unemployment, borrowing, retail sales paint mixed picture of economic recovery

Clothing stores did better business than other retailers in June, which some analysts attributed to aggressive markdowns.
Clothing stores did better business than other retailers in June, which some analysts attributed to aggressive markdowns. (Mark Lennihan/associated Press)
By Sonja Ryst and Peter Whoriskey
Washington Post Staff Writer
Friday, July 9, 2010

More than 450,000 people filed new claims for unemployment benefits last week, as joblessness continued to hamper the U.S. economy and other new economic indicators reflected mixed signs about the recovery.

The number of people filing new unemployment claims has fluctuated between 450,000 and 500,000 a week since January, on a seasonally adjusted basis. Although that is down from last year, it remains an indication of ongoing weakness, economists said.

Other new figures showed that consumer borrowing fell again in May, suggesting that Americans remain nervous about the economy. June retail sales jumped 3 percent, though some analysts noted that deep discounts in prices boosted that number.

"We should feel better because we see consumers out in the stores again," said Craig Thomas, senior economist at PNC Financial Services Group. "We're seeing a recovery but at an uncomfortably moderate pace."

The new unemployment figures come as Congress continues to weigh another extension of unemployment benefits. About 1.7 million people had run out of benefits as of last week, according to the Labor Department. That figure could rise to 3.2 million by the end of the month if Congress decides against continuing the benefits.

"There are headwinds still facing consumers right now," said R.J. Hottovy, a Morningstar analyst.

The Federal Reserve said Thursday that consumer borrowing dropped by $9.1 billion in May. It has fallen in 15 of the past 16 months, and some economists consider the drop a sign of economic weakness. But others said the reduction in consumer debt suggests that households are embracing a more sensible frugality.

"I see this as wonderful evidence that households have learned a lesson," Thomas said. "That's very good news for the long-term soundness of the U.S. economy."

The International Council of Shopping Centers' index of retail sales rose 3 percent in June, slightly ahead of 2.6 percent growth in May but lower than the fiscal year-to-date pace of 3.8 percent.

Clothing stores had stronger sales, which some analysts attributed to aggressive markdowns.

While Abercrombie & Fitch said sales rose 9 percent, Chandi Neubauer, a retail analyst at Majestic Research in New York, said the store "bought" its results. It had been offering merchandise for 30 percent off and recently cut prices to 50 percent off. The words "A&F SUMMER SALE" -- in block letters -- dominated the store's Web site Thursday.

"They definitely sacrificed [profit] margin as a result, but they're also going back to school with a clean floor and not a lot of clearance," Neubauer said. "It's probably setting them up for a good back-to-school season."

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