* Weekly jobless claims fall 26,000, hit 3-month low
* Factory orders fall 0.7 percent in January
* Fourth-quarter productivity growth slashed to 1.8 percent
WASHINGTON, March 6 (Reuters) - The number of Americans filing new claims for unemployment benefits fell more than expected and hit a three-month low last week, a sign of strength in a labor market that has been hobbled by severe weather. Other data on Thursday showed a second straight month of declines in new factory orders in January, likely as harsh weather disrupted activity in some regions of the country. Initial claims for state unemployment benefits dropped 26,000 to a seasonally adjusted 323,000, the Labor Department said on Thursday. That was the lowest level since the end of November and the drop more than unwound the prior week's rise. "Initial claims returned to a more normal level, consistent with a healthy labor market turnover," said Yelena Shulyatyeva, an economist at BNP Paribas in New York. Economists had forecast first-time applications for jobless benefits falling to 338,000 in the week ended March 1. The four-week moving average for new claims, considered a better measure of underlying labor market conditions as it irons out week-to-week volatility, slipped 2,000 to 336,500. The claims data has no bearing on Friday's employment report for February as it falls outside the reference period for the survey. While unseasonably cold weather has dampened hiring in recent months, the drop in new filings for jobless benefits suggests labor market fundamentals remain strong. Nonfarm payrolls are forecast to have increased by 150,000 jobs in February, according to a Reuters survey of economists, up from the weather-depressed gains of 113,000 in January and 75,000 in December. Freezing temperatures have also weighed on home building and appeared to be a drag on manufacturing as well. In a separate report, the Commerce Department said new orders for manufactured goods declined 0.7 percent after falling 2.0 percent in December. Shipments fell for a second straight month in January. Factory activity is also being held back as businesses place fewer orders while working through stocks of unsold goods accumulated in the second half of 2013. Factory orders fell across most categories in January, with big declines in transportation, primary metals and electrical equipment, appliances and components. Orders for machinery also fell.
SLOWER PRODUCTIVITY A second report from the Labor Department suggested businesses would probably need to step up hiring to maintain output, after productivity in the fourth quarter was revised down sharply. Productivity rose at a 1.8 percent annual rate instead of the previously reported 3.2 percent pace. Productivity, which measures hourly output per worker, increased at a 3.5 percent pace in the third quarter. "Slower productivity might push employers to boost hiring," said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto. Economists had expected fourth-quarter productivity growth would be revised down to a 2.5 percent rate. Part of the weakness in productivity reflects sluggish economic growth. The government last week cut its estimate of fourth-quarter gross domestic product growth to an annual pace of 2.4 percent from the previously estimated 3.2 percent rate. For all of 2013, productivity increased 0.5 percent rather than 0.6 percent. That was the smallest gain since 1993 and compared to a 1.5 percent rise in 2012. Unit labor costs - a gauge of the labor-related cost for any given unit of output - fell at a revised 0.1 percent rate in the fourth quarter, still showing weak wage-related inflation pressures in the economy. They had previously been reported to have dropped at a 1.6 percent rate. Unit labor costs declined at a 2.1 percent rate in the third quarter. They were up 1.1 percent in 2013, the weakest reading since 2010.