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Unemployment Dips, Surprising Many

New claims for jobless benefits unexpectedly plunged last week to the lowest level in two months, providing a dose of encouraging news for workers and for companies as the nation's economy muddles forward. But September's retail sales were weak.

For the work week ending Oct. 5, new applications for unemployment insurance dropped by a seasonally adjusted 40,000 to 384,000, the lowest point since the beginning of August, the Labor Department reported Thursday. Many analysts were expecting jobless claims to rise.

In less encouraging news, the biggest U.S. retailers reported dismal sales for September as shoppers, spooked by the yo-yo stock market, a possible war with Iraq and the lackluster jobs market, turned more cautious.

Department stores and apparel stores were hit the hardest. But even high-flying Wal-Mart Stores Inc., Target Corp. and Kohl's Corp. also posted disappointing results. The weak performance led several merchants, including Target, Talbots Inc. and Federated Department Stores Inc., to reduce their earning outlook for the remainder of the year.

The retail sales report raised new questions about how much energy consumers will have as they head into the holiday shopping season.

The behavior of consumers, whose spending accounts for two-thirds of all economic activity in the United States, will shape the economic recovery. Thus far, consumers have been the main source of power for the economy.

On Wall Street, stocks rose as investors were cheered somewhat by the jobless claims report. The Dow Jones industrial average gained 62 points, while the Nasdaq index was up 16 in morning trading.

While the decline in jobless claims offers a promising sign, Labor Department analyst Thomas Stengle cautioned against reading too much into the drop, saying it may partly reflect difficulties adjusting for seasonal factors. The unadjusted claims figures, for instance, showed an equally sharp rise.

Instead, Stengle suggested that the more stable four-week moving average of new claims, which smooths out weekly fluctuations, was a better barometer of the layoffs picture.

The moving average last week fell to a seasonally adjusted 412,250, a decline of 12,250, to the lowest level since early September. Still, for week claims have been above the 400,000 mark, a level associated with a sluggish labor market.

The effects of the uneven economic recovery could be seen vividly in the government's employment report for September released last Friday. That report showed the nation's unemployment rate dipping to 5.6 percent for September even as the economy lost 43,000 jobs.

Heavy job losses in manufacturing, transportation and at public utilities swamped job gains in finance, insurance and real-estate and other service businesses.

Because profits took a hit during last year's recession and are still hurting, some companies have been reluctant to make big commitments in hiring and capital spending, factors restraining the recovery. At corporate boardrooms, economic uncertainties, including a possible war with Iraq and the West Coast dock workers labor dispute, complicate the business climate, economists say.

Thursday's report also showed that the number of unemployed people continuing to collect jobless benefits declined to a seasonally adjusted 3.6 million for the work week ending Sept. 28, the most recent period for which the information is available. The level suggest that businesses are not vigorously hiring.

While expressing concerns about the pace of the recovery, the Federal Reserve — over the objections of two members — decided last month to hold short-term interest rates steady at a 41-year low. The dissenters favored a rate cut, the first of the year.

Economists have mixed opinions on whether the Fed will cut rates at its next meeting in November.

By keeping rates low or possibly nudging them down, Fed policy-makers hope to spur consumers and businesses to spend and invest more, something that would bolster economic growth.

Many economists believe the economy, as measured by the gross domestic product, picked up momentum in the third quarter, growing at a rate of at least 3 percent. But they also predict it will lose some steam in the current October to December quarter. The government will release its first estimate for third quarter GDP at the end of this month.

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