Nearly 5 million Americans drawing jobless benefits


Posted at Feb 20 2009 07:16 AM | Updated as of Feb 20 2009 03:16 PM

WASHINGTON – The number of US workers drawing unemployment aid jumped to a record high of nearly 5 million, the government said on Thursday, as a worsening economy made it increasingly hard to find jobs.

The data from early February suggested the 13-month-old US recession was deepening, a conclusion supported by a report that showed factory activity in the country's Mid-Atlantic region contracted sharply in February.

"The data indicates an accelerated deterioration ... jobs are being lost and the pool of unemployed is growing faster," said Kevin Logan, senior US economist at Dresdner Kleinwort in New York. "People cannot find jobs."

US stocks fell as the data reinforced fears the worsening slump would erode company profits, driving the Dow Jones industrial average to 7,465.95, its lowest close since October 2002.

Worries about more heavy borrowing to fund the government's efforts to rescue the economy hammered Treasury debt prices.

The number of unemployed still on the benefits rolls after drawing an initial week of aid surged 170,000 to 4.99 million in the week ended February 7, the Labor Department said.

It was the highest reading on records dating to 1967 and it took the insured jobless rate to 3.7 percent, the highest since 1983, when the economy was emerging from a 16-month recession.

New applications for unemployment benefits were steady at 627,000 last week, hovering close to a 26-year high and raising the possibility that job losses in the non-farm sector could cross the 600,000 threshold in February.

Steven Wieting, an economist at Citigroup in New York, said the data was "consistent with a very quick sharp rise in the unemployment rate and that's going to continue for the next few months because production data are correcting very sharply."

A researcher at the San Francisco Federal Reserve Bank said in a newsletter that US employment would likely have dropped by about 4 percent by the time the recession ends, which would mark the steepest fall in 50 years.

The aggressive layoffs and the accompanying insecurity over jobs could lead households, whose net worth has already been eroded by the collapse of the housing and stock markets, to cut spending further, creating a vicious cycle.

Washington has put forward an array of measures, including a $787 billion stimulus package, in the hopes of reviving the weakening economy.

New orders plummet

The Philadelphia Federal Reserve Bank said its business activity index, which gauges factory activity in the Mid-Atlantic region, dropped to minus 41.3 in February from a negative 24.3 the prior month.

New orders plummeted and the survey's jobs gauge hit its lowest level since the series started in 1968.

"The data provides confirmation that the sharply negative growth rate is not showing signs of turning around," said Alan Ruskin, chief international strategist at RBS Greenwich Capital in Greenwich, Connecticut. "On the contrary, it may have turned even a little more negative than the breathtaking collapse witnessed in October-November."

In a separate report, the Labor Department said prices received by US farms, factories and refineries rose 0.8 percent in January, the first advance since July as energy prices rebounded.

However, the producer price index was down 1 percent from its year-ago level, the largest drop since October 2006. Core prices, which exclude food and energy costs, rose 0.4 percent last month, accelerating from December's 0.2 percent rise.

Analysts said last month's producer price gain may have reflected seasonal factors and dismissed it as a signal that inflation pressures were suddenly picking up.

"Just about every other measure of inflation that we have seen is showing restrained readings. I don't think it's signalling anything troublesome," said Michael Moran, chief economist at Daiwa Securities in New York.

An index from the private-sector Conference Board meant to forecast where the economy is heading rose 0.4 percent in January, the second straight monthly gain.

Analysts, however, said the so-called index of leading indicators had been inflated by a rise in money supply as the Federal Reserve pumped billions of dollars into the economy to try to combat the recession.

"That's not a sign of good things to come. That's a sign of fear and contraction," said Dresdner Kleinwort's Logan.