By Lucia Mutikani
WASHINGTON (Reuters) - The number of Americans filing for unemployment benefits fell more than expected last week, but the continued impact of Hurricanes Harvey and Irma on the data made it difficult to get a clear picture of the labor market.
Other data on Thursday pointed to underlying economic strength despite the weather-related disruptions. The trade deficit narrowed in August as exports of goods and services rose to more than a 2-1/2-year high. Orders for core capital goods were stronger in August than previously reported.
The reports suggested that trade and business spending on equipment could help to offset some of the anticipated drag on third-quarter economic growth from the storms.
"Today's reports on August trade and factory goods ... add upside risk to our forecast for GDP growth in the third quarter," said Daniel Silver, an economist at JPMorgan in New York.
Initial claims for state unemployment benefits dropped 12,000 to a seasonally adjusted 260,000 for the week ended Sept. 30, the Labor Department said.
Harvey and Irma along with Hurricane Maria affected claims for Texas, Florida, Georgia, Puerto Rico and the Virgin Islands, a Labor Department official said. Economists had forecast claims falling to 265,000 in the latest week.
Claims shot up from a low of 236,000 in late August, hitting an almost three-year high of 298,000 at the start of September. As a result, Harvey and Irma are expected to cut into job growth in September.
According to a Reuters survey of economists, the Labor Department's closely watched employment report on Friday will likely show that nonfarm payrolls increased by 90,000 jobs last month after rising by 156,000 in August.
The labor market disruptions are expected to be temporary, with the job market generally remaining strong.
Claims have now been below the 300,000 threshold, which is associated with a robust labor market, for 135 consecutive weeks. That is the longest such stretch since 1970, when the labor market was smaller.
The dollar <.DXY> firmed against a basket of currencies, while prices for U.S. Treasuries fell. Stocks on Wall Street rose, with the three main U.S. indexes hitting fresh record highs.
STRONG BUSINESS SPENDING In a separate report on Thursday, the Commerce Department said the U.S. trade gap declined 2.7 percent to $42.4 billion, the smallest since September 2016. When adjusted for inflation, the trade deficit was little changed at $61.8 billion.
The so-called real trade deficit average for July and August was below the second-quarter average of $62.4 billion.
That suggests trade could contribute to gross domestic product in the third quarter and help to soften the economic blow of the hurricanes, which are expected to cut at least six-tenths of a percentage point from economic growth in the third quarter. Trade added two-tenths of a percentage point to the second quarter's 3.1 percent annualized growth pace.
Growth estimates for the third quarter are as low as a 1.8 percent rate. In August, exports of goods and services increased 0.4 percent to $195.3 billion, the highest level since December 2014. Exports to China increased 8.8 percent.
Imports of goods and services dipped 0.1 percent to $237.7 billion in August, with imports of industrial supplies and materials hitting their lowest level since November 2016.
"We expect upbeat external demand and a more competitive currency to support export growth, while reasonable domestic demand should continue to pull in imports at a moderate pace," said Gregory Daco, chief U.S. economist at Oxford Economics in New York.
Imports of goods from China rose 5.1 percent to a record high. The politically sensitive U.S.-China trade deficit increased 4.0 percent to $34.9 billion in August, the highest level since September 2015.
In another report, the Commerce Department said orders for non-defense capital goods excluding aircraft - seen as a measure of business spending plans - jumped 1.1 percent in August instead of the 0.9 percent increase reported last month. Shipments of these so-called core capital goods, which are used to calculate business equipment spending in the gross domestic product report, shot up 1.1 percent instead of the previously reported 0.7 percent rise.
Strong business spending on equipment is helping to underpin manufacturing, which makes up about 12 percent of the U.S. economy. Business investment in equipment grew at its fastest pace in nearly two years in the second quarter.
"Trends in capital goods shipments point to a pickup in business equipment investment in the third quarter, and the strength of orders suggests this may be sustained toward the end of the year," said John Ryding, chief economist at RDQ Economics in New York.
(Reporting by Lucia Mutikani; Editing by Paul Simao)