Data show US economic recovery shaky

The number of Americans lining up to claim unemployment benefits surged unexpectedly last week and factory orders tumbled in April, reports showed, indicating the economic recovery is shaky.

But consumers provided a bright spot, with May retail sales doing better than forecast as shoppers snapped up clothing and hunted for bargains.

"The pick up in the economy is still a forecast," said Paul Kasriel, chief economist at Northern Trust. "The economy here and now is still very weak."

The Labour Department said the number of people applying for US initial jobless aid rose by 16,000 to 442,000 in the May 31 week, its highest level in more than a month.

Analysts were expecting claims to drop to 420,000 from a revised 426,000 for the previous week.

"The labour market continues to struggle," said David Rosenberg, chief North American economist at Merrill Lynch in a report. "Companies remain hesitant to hire."

"If we can get our (gross domestic product) growing even faster then we're going to see some job growth and some pick-up and I can see that happening in the months ahead," John Taylor, Treasury Undersecretary for International Affairs said in a CNN-FN interview.

There was also disappointing news in the manufacturing sector. The Commerce Department said April factory orders sank 2.9 per cent, worse than forecasts for a drop of 1.5 per cent.

The report showed sharp falls in demand for machinery, transportation and electrical equipment.

Orders for computers and electronic products rose a modest 0.3 per cent, but that followed a much faster 2.4 per cent increase the previous month.

Analysts said more recent data painted a better picture. "These are April data and the more current data from the ISM report would suggest that perhaps manufacturing is stabilising at a low level," said Kasriel.

Monday's report from the Institute for Supply Management showed a rebound in the sector in May. Its index of manufacturing rose to 49.4 from 45.4 in April, beating economists' forecasts for a rise to 48.6.

And a leading manufacturing group, the National Association of Manufacturers, said last month it was seeing signs of recovery, helped by a weaker dollar, low inventories, better credit conditions, lower energy prices, spending and tax cuts.

One highlight of Thursday's data was on May retail sales. Bank of Tokyo-Mitsubishi said its index of 72 retailers showed a two per cent rise in May sales at stores open at least a year, above its forecast for a 1.5 per cent increase.

Discounters like Wal-Mart Stores Inc. and warehouse clubs such as Costco Wholesale Corp. and BJ's Wholesale Club fared well last month as cash-strapped consumers looked for bargains on clothes and staples like food and household cleansers.

Analysts had been expecting a lackluster performance as many retailers have reported overflowing inventory and have had to discount merchandise, but price-cutting can fuel sales.