The number of Americans filing new claims for unemployment benefits rose only slightly last week after a big drop the week before, a hopeful sign the job market is still on the mend.
Other data on Thursday showed a sharp drop in new orders for U.S. factory goods, although orders outside the transportation sector rose for a second straight month, which should calm fears of a rapid loss of momentum in factory activity.
"The economy is obviously feeling the strain from cooler global conditions and the policy uncertainty that continues to over hang us here as we turn the corner on 2012 and into 2013," said Robert Dye, chief economist at Comerica in Dallas.
Worries over the so-called fiscal cliff - automatic tax rises and government spending cuts that will remove about $600 billion from the U.S. economy next year unless Congress acts - have made businesses cautious about ramping up hiring.
The report on jobless claims, however, offered little sign that companies were laying off workers on a wide scale.
Initial claims for state unemployment benefits climbed 4,000 last week to a seasonally adjusted 367,000, the Labor Department. But that followed a drop of 22,000 and a four-week average, which offers a view of trends, held steady at 375,000.
The distressed labor market has been a hurdle to President Barack Obama's bid for re-election, and the monthly U.S. Labor Department employment report due on Friday for September is seen offering cold comfort.
That report, the penultimate one before the November elections, is expected to show employers added 113,000 jobs to their payrolls in September, according to a Reuters poll of economists. That would likely be too few to lower the nation's 8.1 percent jobless rate, which is seen rising to 8.2 percent.
Persistently poor labor market conditions prompted the Federal Reserve last month to announce a plan to buy $40 billion worth of mortgage-backed securities each month until it sees a sustained turnaround in employment. It hopes the purchases will drive down long-term borrowing costs and spur the recovery.
Minutes of the Sept 12-13 Fed meeting released on Thursday showed the U.S. central bank might adopt numerical thresholds for inflation and joblessness that would serve as guideposts for policy.
FACTORIES COOLING BUT NO HARD LANDING
A separate report from the Commerce Department on Thursday showed new orders for manufactured goods tumbled 5.2 percent - the biggest drop since January 2009 when the economy was in the grip of a recession.
But the decline was due to a collapse in demand for aircraft and a softening of automobile purchases, and orders excluding transportation rose 0.7 percent.
Manufacturing has carried the economic recovery and while activity has cooled significantly in recent months, there are so far little signs of a hard landing. A closely watched index released on Monday show that national factory activity expanded in September for the first time in four months.
Stocks on Wall Street rose on Thursday on the claims data and comments by European Central Bank President Mario Draghi on tools to tackle the eurozone debt crisis.
The Standard & Poor's 500 index rose for a fourth day, putting it near a new five-year high. The U.S. dollar fell to a two-week low against the euro and prices for U.S. Treasury debt slipped.
A third report bolstered the view that fiscal cliff fears were not leading businesses to lay off workers.
While planned layoffs at U.S. firms rose 4.9 percent in September, they came in at a 15-year low for the month, consultants Challenger, Gray & Christmas said.
"Though private business surveys have indicated that companies are concerned about the tax hikes ... this report suggests that there has not yet been a pickup in plans by larger firms to reduce employment levels," said John Ryding, chief economist at RDQ Economics in New York.
SOME BRIGHTER SIGNS
Last week's unemployment claims data fell outside the survey period for the September employment report due Friday, but applications dropped 18,000 from the first week of the month, signaling some improvement in the pace of job creation.
A modest improvement in the labor market has also been telegraphed by increases in measures of manufacturing and service sector jobs in September. In addition, payrolls processor ADP on Wednesday reported better-than-expected private sector jobs gains in September.
Even while businesses may be showing some caution, fears of tighter fiscal policy do not yet appear to be weighing on consumers, who are being cushioned by rock bottom borrowing costs engineered by the Fed.
September sales at U.S. retailers looked solid as shoppers finished up their back-to-school buying.
Sales at stores open at least a year at 17 chains tracked by Thomson Reuters I/B/E/S rose 3.6 percent, matching analysts' expectations. In September 2011, such sales rose 6.4 percent.
"Consumer access to credit is fueling home sales, auto sales and other big ticket items that consumers purchase, but we really need to see job growth for that to continue. For now, the credit availability is keeping the economy afloat," said Dye.
(Additional reporting by Jessica Wohl; Editing by Tim Ahmann)