The dominant US service sector improved last month and businesses boosted productivity in the second quarter, but evidence of labour market weakness overshadowed other data the day before a key jobs report.
The Labour Department said that business productivity surged at a revised 4.3 per cent annual rate, nearly double the 2.2 per cent gain previously reported and well ahead of forecasts for a 3.5 per cent increase.
"We're not in an ugly environment but we're not in a great environment either," said Kurt Brunner, portfolio manager at Swarthmore Group in Philadelphia.
Companies have cut payrolls in each of the first seven months this year and a report on Friday showed that they did so again in August.
A separate report from the Labour Department confirmed a steadily weakening labour market as the number of US workers filing new claims for jobless benefits jumped by 15,000 last week to a seasonally adjusted 444,000.
That was much higher than the 425,000 claims that analysts surveyed by Reuters had anticipated and helped send major US stock indexes down more than two per cent.
But prices for US Treasury debt extended gains as investors bet the Federal Reserve would keep interest rates low.
Another report from ADP Employer Services showed private employers cut 33,000 jobs last month. The Institute for Supply Management said its non-manufacturing index rose to 50.6 for last month from July's 49.5, with a reading above 50 signalling expansion. The ISM report showed inflation pressures in the service sector moderated but the jobs picture also deteriorated. The report on productivity, which is a gauge of hourly output per worker, showed companies keeping a tight grip on costs by keeping their payrolls lean.
Unit labour costs, a gauge of inflation and profit pressures closely watched by the Federal Reserve, decreased 0.5 per cent in the second quarter.
Generally, analysts said the higher productivity was encouraging, since it keeps inflation in check and could help support business profits at a time of soaring costs, though it did reflect tough economic conditions.
The latest figures from the retail sector illustrated the dire straits of many consumers, who confronted job losses even as food and energy prices surged this year.
US discounters, led by Wal-Mart Stores Inc., remained a bright spot in a weak retail industry last month as shoppers sought back-to-school deals, while department stores and luxury chains disappointed.
"Consumers are very focused on value, stretching their dollars; and anything deemed not absolutely of need, they are forgoing those purchases," said Ken Perkins, president of Retail Metrics.
In contrast to the strong gain in overall business productivity, the manufacturing sector skidded lower in the second quarter. The decline was concentrated in production of durables goods, including the struggling automobile sector.