Wednesday 24 December 2008
by: Christopher S. Rugaber, The Associated Press
Charles Sparks, 8, and his sister Cheyenne Houston, 6, await a free meal at a soup kitchen in Wilmington, Ohio. Their mother is being laid off by DHL. (Photo: Getty Images)
Washington - New claims for unemployment benefits rose more than expected last week, the government said Wednesday, while consumers cut back on their spending for the fifth straight month amid a deepening recession.
The Labor Department reported that initial requests for jobless benefits rose to a seasonally adjusted 586,000 in the week ending Dec. 20, from an upwardly revised figure of 556,000 the previous week. That's much more than the 560,000 economists had expected.
That's also the highest level of claims since November 1982, though the work force has grown by about half since then.
The financial markets took the news in stride. The Dow Jones industrial average rose by 67 points to 8,486 in midday trading.
The Commerce Department said consumers reduced their spending by 0.6 percent last month, following a 1 percent drop in October. But the steep plunge in gasoline prices, which is good news for consumers, made the declines look worse.
Excluding price changes, consumer spending would have dropped by 0.5 percent in October and actually risen by 0.6 percent in November. The November increase excluding inflation was the best showing in more than three years.
Analysts attributed the rebound in inflation-adjusted spending to the huge plunge in gasoline prices and aggressive discounting by retailers trying to salvage the holiday shopping season. But they viewed it as a temporary blip and not the start of a sustained recovery for the consumer sector.
Brian Bethune, an economist at IHS Global Insight, predicted that consumer spending would fall at an annual rate of 2.5 percent to 3 percent in current quarter, following a 3.8 percent drop in the third quarter. That decline was the worst in 28 years.
Consumer spending is closely tracked by economists because it accounts for two-thirds of the total economy.
The government reported Tuesday that the overall economy, as measured by gross domestic product, was declining at an annual rate of 0.5 percent in the July-September quarter. Analysts believe the contraction will accelerate in the current quarter. Some are forecasting that GDP will plunge at an annual rate of 6 percent, which would be the worst showing since 1982.
The Commerce Department said Wednesday that orders for large manufactured goods dropped by 1 percent, less than the 3 percent economists had expected. The decline was led by a huge drop in orders for aircraft and a decrease in the automotive sector.
A Labor Department analyst, meanwhile, said auto-related layoffs were a factor behind the rise in jobless claims. The four-week average of initial claims, which smooths out fluctuations, rose to 558,000. That's the highest since December 1982, when the economy was emerging from a steep recession.
There was some improvement in the number of Americans continuing to seek unemployment benefits, which dropped slightly to 4.37 million from 4.39 million the previous week. Wall Street economists had expected the number to increase to 4.4 million.
Economists consider jobless claims a timely, if volatile, indicator of the health of the labor markets and broader economy. A year ago, initial claims stood at 353,000.
The elevated level of new jobless applications is just one of several signs that the labor market has deteriorated rapidly in recent months.
The Labor Department said earlier this month that employers cut a net total of 533,000 jobs in November, sending the unemployment rate to 6.7 percent, the highest in 15 years.
Mass layoffs are taking place in a wide range of industries. Industrial conglomerate Textron Inc. on Tuesday said it has cut 2,200 jobs, while technology services provider Unisys Corp. said Monday it will eliminate 1,300 jobs. Sovereign Bancorp Inc.'s bank unit said last week it is laying off 1,000 employees.
AP Economics Writer Martin Crutsinger contributed to this report.