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By Lucia Mutikani
April 21, 2011 2:56 PM EDT
Factory activity in Middle Atlantic states braked sharply in April and the number of Americans claiming new jobless benefits fell less than expected, implying the economy was struggling to regain momentum.
Other data on Thursday showed steep declines in home prices in February, underscoring the challenges confronting the economy, but the recovery is expected to remain on track.
The reports came a week before government data is expected to show growth slowed significantly in the first quarter. The economy grew at a 2.0 percent annualized rate, according to a Reuters survey, after a 3.1 percent pace in the last three months of 2010.
"The economy certainly lost some steam through the first quarter, (but) the underlying health remains sound," said Brian Levitt, an economist for OppenheimerFunds in New York. "It's an economy that is likely to grow, but out-sized growth is not on the horizon."
The Philadelphia Federal Reserve Bank's business activity index fell to 18.5 in April, pulling back from March's 27-year high of 43.4 and far exceeding economists' expectations for a drop to 37.
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The index covers Pennsylvania, southern New Jersey and Delaware and is an early indicator of the health of U.S. manufacturing contained in a later national report.
Separately, the Labor Department said initial claims for state unemployment benefits fell 13,000 to a seasonally adjusted 403,000 last week, well above economists' expectations for a decline to 392,000.
The slowdown in economic activity comes as some policymakers at the Federal Reserve are pushing for the U.S. central bank to start considering withdrawing some of the stimulus it has provided the economy.
The Fed's policy-setting committee will meet April 26-27 to assess the economy and is expected to reaffirm a June end date for purchases of $600 billion of government bonds.
Thursday's economic data curtailed stock market gains, which began with a flurry of strong corporate earnings. Treasury debt prices rose marginally, while the dollar fell against a basket of currencies.
Economists said it was possible supply disruptions in the aftermath of the devastating earthquake and tsunami in Japan could have hindered U.S. factory activity and kept initial unemployment claims elevated as some automakers idled plants.
PLANTS IDLED
"While affected individuals can file claims for unemployment insurance when these plants close temporarily, it is unlikely that workers were laid off for the entire payroll period, meaning they would still count as employed in the payroll survey data," said Daniel Silver, an economist at JPMorgan in New York.
The claims data covered the survey period for April's nonfarm payrolls report, which will be released in early May. Employers added 216,000 jobs in March, the most in 10 months, and the unemployment rate slipped to a two-year low of 8.8 percent from 8.9 percent.
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