New claims for state jobless benefits unexpectedly rose last week, while manufacturing activity and employment slowed in June, heightening fears the U.S. economic recovery is stalling.

The data on Thursday added to concerns over the risk of a double-dip recession, although many analysts said a renewed downturn was unlikely as the production side of the economy continues to expand, though less briskly than earlier.

None of the data is good for the bullish camp, which was expecting a V-shaped recovery for the rest of the year. These numbers suggest fatigue in the consumer sector, said Joseph Battipaglia, a market strategist at Stifel Nicolaus in Yardley, Pennsylvania.

Initial claims for state unemployment benefits increased 13,000 to 472,000, the Labor Department said, above market expectations for 452,000.

In a separate report, the Institute for Supply Management said its barometer of manufacturing activity slipped to 56.2 in June from 59.7 the prior month, with growth in the employment index moderating slightly.

While layoffs have slowed sharply from early last year, businesses remain skeptical of the strength of the recovery and are holding back on hiring, keeping claims for unemployment benefits at uncomfortably lofty levels.

High unemployment is a sore point for President Barack Obama, whose approval ratings have plummeted, and it could cost his fellow Democrats dearly at the polls in November.

More than 8 million Americans lost their jobs during the recession, but employment growth has been so tepid that it could take years for many of them to find work again.

It's looking more and more like the job market is treading water. Layoffs are down from 2009, but hiring hasn't really picked up and this is disappointing, said Stephen Bronars, a senior economist at Welch Consulting in Washington.

There is a lot of uncertainty on the hiring side that's causing things to remain sluggish. In order for the recovery to give people confidence it needs to cut across different sectors of the economy.


Manufacturing has largely led the recovery from the longest and deepest recession since the 1930s. Data ranging from retail to home sales has hinted at a slackening in the recovery that started in the second half of 2009.

Contracts for pending sales of previously owned homes plunged a record 30 percent in May to an all-time low of 77.6, a report from the National Association of Realtors showed, following the end of a popular homebuyer tax credit.

U.S. stock indices tumbled on the economic reports, which left investors worrying about poor earnings, while Treasury debt prices rose. The U.S. dollar fell versus the yen.

The claims data has no implications for the June employment report due on Friday as it falls outside the survey period.

Nonfarm payrolls likely fell 110,000 last month, the first decline this year, as the bulk of May's 411,000 temporary census jobs ended, according to a Reuters survey. Employment increased 431,000 in May.

However, there is a risk payrolls could show a steeper decline after an independent report on Wednesday showed private employers added only 13,000 jobs last month.

Although domestic manufacturing activity slowed last month, it remains stronger than in China, where it hit its slowest pace in more than a year. Euro zone manufacturing slowed in June to its weakest growth rate in four months.

There is solid growth in manufacturing. Nothing this month raises my concerns about the trend line. I think we'll stay on a very positive trend for the foreseeable future, said Norbert Ore, chair of the ISM manufacturing business survey committee in Atlanta, Georgia.

Separately, the number of planned layoffs at U.S. companies rose slightly last month, but the level remained close to a four-year low, global outplacement consultancy Challenger, Gray & Christmas said.

Employers announced 39,358 planned job cuts in June, up 1.4 percent from 38,810 in May. Announced layoffs touched a four-year low in April at 38,326.

In the Labor Department report, the four-week moving average of new jobless claims, considered a better measure of underlying labor market trends, rose 3,250 to 466,500 -- the highest level since early March.

(Additional reporting by Corbett Daly in Washington and Edward Krudy and Richard Leong in New York; Editing by Andrea Ricci)