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Reflecting persistent weakness in the job market, first-time unemployment claims rose to a two-month high in the latest week.

Initial unemployment claims increased by 3,000 to 422,000 in the week ended Sept. 6, the highest level since July, and a touch above economists' expectations. Meanwhile, the four-week moving average rose by 4,500 to 407,250, the highest level in six weeks.

"For job seekers, things remain pretty bleak," said Oscar Gonzalez, an economist with John Hancock Financial Services. "It feels like we've been taking two steps forward and one step back for a while now. With this report, it's starting to feel like we're just standing still."

Gonzalez said strong productivity growth is still preventing firms from hiring new workers. "Until businesses feel a real need for more hands -- until productivity alone won't allow them to reach their earnings goals -- they won't begin hiring," he said.

In a separate report, the U.S. trade deficit widened 0.7% to $40.3 billion in July as imported goods surged 1.6% to $126.5 billion. That's the highest import level since September 2000 and the second highest on record. Economists had been looking for the deficit to rise to $40.0 billion from $39.5 billion in the prior month.

Exports rose 2% to $86.1 billion, the best showing since May 2001. The Commerce Department said the trade deficit with China widened to a record $11.3 billion in July.

Another report Thursday showed that import prices rose just 0.2% in August, the slowest pace in three months. Export prices fell 0.1%. Economists had expected prices to remain flat.

"The message from the report is that the weaker dollar is not exerting significant upward pressure on import prices and that there are no signs of a pickup in inflation on the import side," said J.P. Morgan senior economist James Glassman.