By Alister Bull
WASHINGTON, Oct 31 - U.S. jobless claims declined last week in welcome news for the nation's battered labour market after the impact of a government shutdown on furloughed federal workers diminished.
Initial claims for state unemployment benefits dropped by 10,0000 to a seasonally adjusted 340,000, the Labor Department said on Thursday.
Economists polled by Reuters had expected first-time applications to fall to 339,000 last week. Financial markets showed no immediate reaction to the news.
The U.S. labour market has apparently slackened in recent months, with private-sector employers hiring fewer workers in October, after uncertainty caused by budget brinkmanship in Washington dented consumer and business confidence.
But economists saw some signs for optimism in the new data, as the impact of earlier computer glitches worked its way out of the report.
"We suspect that further improvement is likely as claims averaged roughly 330,000 before data collection issues began impacting the figures," said Gennadiy Goldberg, U.S. strategist at TD Securities.
"This should continue to suggest that the underlying tone on the firing side of the labour market equation remains better, even as companies may be delaying new hires amid the ongoing uncertainty over the federal budget."
Other recent data on hiring, factory output and home sales in September had already suggested the economy lost a step even before the government shut down. Readings on consumer confidence this month have shown the fiscal standoff rattled households.
Anxious to maintain policy support while the economy works through this soft spot, the U.S. Federal Reserve extended its asset purchase campaign at a meeting on Wednesday that opted to keep buying bonds at a $85 billon monthly pace.
A 16-day partial shutdown of the federal government had pushed up claims in recent weeks as furloughed workers applied for benefits, but this factor appeared to be diminishing.
Claims filed by federal employees dropped 29,713 in the week ended October 19 to 14,423. The shutdown ended on October 17.
In addition, a Labor Department analyst said California, which had been dealing with a backlog, reported no carryover in claims last week from previous weeks.
Technical problems as California converted to a new computer system have distorted the claims data since September, which had made it hard to get a clear read of labour market conditions.
The four-week moving average for new claims, considered a better measure of labour market trends, increased 8,000 to 356,250.
Federal Reserve officials are closely focused on improvements in the labour market, which they have made a condition for tapering their massive bond buying program, while stressing they will wait a considerable period before beginning to raise interest rates after asset purchases have halted.
Markets have pushed out their expectations for a rate hike to June 2015, when the chance of a move was priced at 60 percent. Earlier this week, the Fed funds futures contract had signalled a 52 percent chance of a hike in April 2015.
The government will publish October's employment report on November 8. Payrolls gained 148,000 in September, with the unemployment rate hitting a near five-year low of 7.2 percent.
But if average monthly jobs growth continues at less than 150,000, where it has been over the last three months, that would make it difficult for the jobless rate to fall further.
Furthermore, the shutdown could have impacted the gathering of responses for the survey that form the basis of the unemployment rate, resulting in a smaller sample which might undermine the accuracy of the report.
(Reporting by Alister Bull; Additional reporting by Ellen Freilich; Editing by Krista Hughes)