New jobless claims surge to 26-year high

Reuters

Posted at Feb 06 2009 08:32 AM | Updated as of Feb 06 2009 04:32 PM

WASHINGTON – The number of US workers filing new claims for jobless benefits hit a 26-year high last week and factory orders plummeted in December, data showed on Thursday, illustrating an economy mired deep in recession.

In addition, the number of people staying on the jobless benefit rolls hit a record high late last month.

"The economy is suffering. Things are getting worse, not better. Everything is weakening at a faster pace than we have ever seen. You don't need to embellish," said Brian Fabbri, North America chief economist at BNP Paribas in New York.

The Labor Department said first-time claims for state unemployment insurance benefits rose 35,000 to 626,000 in the week ended January 31, well above the level Wall Street had expected and the highest since October 1982.

US markets shrugged off the data, cheered by above-forecast sales from retailer Wal-Mart and speculation the government would suspend an accounting requirement on the recognition of losses that has resulted in billions of write-downs for banks.

The Dow Jones industrial average ended up 106.41 points at 8,063.07. US government bond prices pushed higher, with the jobless claims report viewed as further confirmation that the year-long recession was deepening.

The housing-led downturn is having a devastating impact on jobs, further squeezing households whose net worth has also been eroded by the stock market collapse.

With consumers drastically cutting back on spending, companies are responding to the slump in demand by further reducing their payrolls.

Illustrating the rapid deterioration of the labor market, the number of unemployed drawing benefits after an initial week of aid surged to a record 4.79 million in the week ended January 24, the latest week for which the data is available.

The data came ahead of a closely watched government report on employment on Friday that is expected to show job losses accelerated last month. A report on Wednesday suggested the private sector purged 522,000 jobs last month.

"It continues to suggest we are going to get a deterioration of labor market readings and that is going to continue beyond tomorrow's (payrolls) number," said Michael Strauss, chief economist at Commonfund in Wilton, Connecticut.

Stimulus needed

Analysts said the figures underscored the need for a fiscal stimulus to arrest the economic decay. President Barack Obama, canvassing support for a package of spending and tax-cut measures that could cost close to $900 billion, warned Friday's jobs report would be "dismal."

A separate report from the Commerce Department showed new orders received by US factories slumped 3.9 percent in December, a fifth consecutive monthly decline.

However, the drop was modest compared to November's 6.5 percent plunge, the steepest fall since July 2000. For all of 2008, factory orders edged up just 0.4 percent, the weakest showing since 2002.

Orders for so-called durable goods, items meant to last three years or more, slid 3 percent in December, a bit steeper decline than first reported last week.

Data from the International Council of Shopping Centres showed retail sales for January slid for the fourth straight month, dropping 1.6 percent from a year ago.

Wal-Mart bucked the trend with a stronger-than-expected increase, but in a new sign of concern over the economy, it said it would no longer issue monthly sales forecasts because of volatile consumer habits.

The sharp job cutting last quarter trimmed the total number of hours employees worked, boosting productivity.

Non-farm productivity rose at a 3.2 percent annual rate in the fourth quarter, but output plunged 5.5 percent, the biggest drop since 1982, a separate Labor Department report showed.

Hours worked outside the farm sector fell at an 8.4 percent annual rate in the fourth quarter, the biggest decline since the first quarter of 1975. In the manufacturing sector, hours worked slumped 14.1 percent.

"This suggests that US companies are preparing for a long-lasting recession," said Harm Bandholz, an economist at UniCredit Markets and Investment Banking in New York.

Unit labor costs, a gauge of inflation and profit pressures closely watched by the Federal Reserve, were up 1.8 percent in the fourth quarter, the preliminary report showed, well below Wall Street's estimates for a 3 percent increase.

Diminishing inflation pressures boosted hourly compensation by a 15.6 percent annual rate during the fourth quarter, the largest increase since the series started in 1947.

"That's something that provides some hint of underlying support to the economy. Real income growing may help to stabilize things in a couple of months, a little bit, for the economy," said Commonfund's Strauss.