New claims for jobless aid rose last week while consumer prices notched their largest decline in nearly 1-1/2 years in May, suggesting interest rates will remain ultra low to nurse the fragile economic recovery.

Fears that growth could be slowing were heightened on Thursday by a report showing factory activity in the country's Mid-Atlantic region braked to its slowest pace in 10 months in June. The employment gauge fell to its lowest level since November.

"I don't know if this is temporary, related to everything that has been going on in the markets, or if this means that the recovery is slowing," said Alan Lancz, president of Alan B. Lancz & Associates in Toledo, Ohio.

Financial markets have been worried that a debt crisis that started in Greece could spread. Belt-tightening by European governments already looks set to slow economies there and take a small bite out of U.S. growth.

For a labor market that is struggling to recover from the deepest U.S. recession since the 1930s, the head winds are proving problematic.

Initial claims for state unemployment benefits increased 12,000 to a seasonally adjusted 472,000 as manufacturing, construction and education sectors shed workers, the Labor Department said
t said.

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