New jobless claims drop to 512K, lowest since Jan.

WASHINGTON (AP) — The number of newly laid-off workers filing claims for unemployment benefits last week fell to the lowest level in 10 months, evidence that job cuts are easing as the economy slowly heals.

Still, companies are reluctant to hire and economists expect the unemployment rate will tick up to 9.9 percent when October’s figure is reported Friday. The jobless rate hit a 26-year high of 9.8 percent in September.

The Labor Department said Thursday that first-time claims for jobless benefits fell by 20,000 to a seasonally adjusted 512,000. That’s better than economists’ estimates of 523,000.

Economists closely watch initial claims, which are considered a gauge of the pace of layoffs and an indication of employers’ willingness to hire new workers.

The four-week average, which smooths fluctuations, dropped to 523,750, its ninth straight decline. That’s 135,000 below the peak for the recession, reached in early April.

Despite the improvement, initial claims remain well above the roughly 400,000 that economists say will signal job creation.

The economy grew at a 3.5 percent annual pace in the July-September quarter, the government said last week, ending a record four straight quarters of decline and providing the strongest signal yet that the recession is over.

But economists worry that growth will slow early next year as various government stimulus programs wind down. That uncertainty has made many employers reluctant to hire.

In addition, many companies are squeezing more production from their existing work forces. Productivity, the amount of output per hour worked, jumped 9.5 percent in the third quarter, the Labor Department said in a separate report. That’s the sharpest increase in six years, and it enables companies to produce more without hiring extra workers.

Economists expect the nation lost a net total of 175,000 jobs last month, adding to the 7.2 million lost since the recession began in December 2007.

The number of people claiming jobless benefits for more than a week fell by 68,000 to 5.75 million, above analysts’ estimates but the eighth drop in nine weeks. The continuing claims data lag initial claims by one week.

Another 4.1 million people claimed extended unemployment benefits in the week ended Oct. 17, the latest data available, an increase of about 100,000 from the previous week. Congress has added 53 weeks of emergency aid on top of the 26 weeks typically provided by states.

Legislation to extend benefits by another 14 to 20 weeks was approved earlier this week by the Senate.

Many analysts expect the unemployment rate could rise as high as 10.5 percent before the recovery gains enough steam to start pushing it down next summer. The concern is that the recovery and consumer spending, which accounts for 70 percent of economic activity, could falter if households remain squeezed by layoffs, stagnant wages and depleted savings.

The Federal Reserve pledged Wednesday to keep interest rates low for an “extended period,” which central bank policymakers can do because wage and general inflation pressures have vanished during the steep downturn.