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WASHINGTON: The number of Americans filing new claims for unemployment benefits fell more than expected last week, while layoffs plunged to a 21-year low in June, suggesting the labour market recovery from the Covid-19 pandemic was gaining traction.

But a shortage of willing workers is hampering hiring, with other data on Thursday showing a measure of employment at factories contracting in June for the first time in seven months. Manufacturers said they were experiencing "difficulty in hiring and retaining direct labour," the Institute for Supply Management (ISM) said in its survey of national factory activity, noting that these challenges "across the entire value chain continue to be the major obstacles to increasing growth."

The data was released ahead of Friday's closely watched employment report for June, which according to a Reuters survey of economists will likely show nonfarm payrolls increasing by 700,000 jobs last month after rising by 559,000 in May. The unemployment rate is forecast to tick down to 5.7% from 5.8%.

The economy is experiencing a boom in demand following a reopening made possible by vaccinations against the coronavirus, with more than 150 million Americans fully immunized.

Initial claims for state unemployment benefits dropped 51,000 to a seasonally adjusted 364,000 for the week ended June 26, the Labour Department said. That was the lowest number since March 2020, when mandatory shutdowns of nonessential businesses were enforced to slow the first wave of Covid-19 infections.

The improvement in claims had appeared to stall in mid-June. Though claims remain above the 200,000-250,000 range that is viewed as consistent with a healthy labour market, they have tumbled from a record 6.149 million in early April 2020.

Economists polled by Reuters had forecast 390,000 applications for the latest week. There was a big decline in filings in Pennsylvania, which reversed the prior week's surge. The state last month upgraded its filing system, and the transition could be causing volatility in the data. There were also large drops in claims in California, Kentucky and Texas.

The claims data could become noisy in the weeks ahead as 25 states with mostly Republican governors pull out of federal government-funded unemployment programs, including a $300 weekly check, which businesses complained were encouraging the jobless to stay at home. The early termination began on June 5 and will run through July 31, when Louisiana, the only one of those states with a Democratic governor, ends the weekly check.

For the rest of the country, these benefits will lapse on Sept. 6. There is no evidence so far of a surge in job searches in the 20 states that have already ended the federal benefits.

In a separate report on Thursday, ISM said its index of national factory activity slipped to 60.6 last month from 61.2 in May. A reading above 50 indicates expansion in manufacturing, which accounts for 11.9% of the US economy. A measure of factory employment contracted for the first time since November.

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