U.S. workers on jobless benefits at record high

WASHINGTON Thu Feb 26, 2009 4:24pm EST

1 of 2. Craig Berry, who has been unemployed for 10 months, signs up for temporary work at a Manpower temporary agency in Chicago February 5, 2009.

Credit: Reuters/John Gress

Related Video

WASHINGTON (Reuters) - The number of U.S. workers drawing jobless aid jumped to a record high in mid-February, while the recession undercut demand for manufactured goods last month and sent new homes sales to their lowest since 1963.

The worsening global economic slump pushed new orders for long-lasting U.S. manufactured goods to a six-year low in January. The housing market, at the center of the downturn, continued to slow and sales of new home hit a record trough in January, according to government reports on Thursday.

"We are deteriorating about as fast as we can, the data today were pretty catastrophic. The economy is going to continue to contract, probably at least until the middle of the year," said Stephen Stanley, chief economist at RBS Greenwich Capital Markets in Greenwich, Connecticut.

Companies are cutting staff to lower costs as demand slumps and banks limit access to credit. However, rising unemployment is sapping consumer spending and piling pressure on an economy wallowing in a 14-month recession.

The government has stepped in with a $787 billion package of spending and tax cuts to break the downward spiral.

U.S. stocks, which largely ignored the data, fell on worries that the Obama administration plan to expand healthcare coverage would be a drag on industry profits. The Dow Jones ended down 88.81 points at 7,182.08.

Treasury debt prices, which usually rally on poor economic data, sagged as the prospect of a record $1.75 trillion budget deficit underscored to need to raise bond issuance.

The number of people remaining on the benefits roll after drawing an initial week of assistance increased by 114,000 to a record 5.11 million in the week ended February 14, the most recent week for which data is available, the Labor Department said.

Initial claims for state unemployment insurance benefits increased to a seasonally adjusted 667,000 last week from 631,000 the prior week, the department said. It was the highest reading since October 1982.

The surge in weekly applications for unemployment benefits implied February's jobs report could show a decline in payrolls in excess of 700,000, according to some economists.

"It's getting uglier by the day. According to our model estimate, the recent surge in initial jobless claims signals a decline in February payrolls of about 750,000," said Harm Bandholz, an economist at Unicredit Markest & Investment Banking in New York.

Payrolls declined by nearly 600,000 in January, the largest drop since 1974.

DURABLE ORDERS PLUNGE

A separate report from the Commerce Department durable goods orders dropped 5.2 percent to $163.8 billion in January, the lowest level since December 2002. Orders fell 4.6 percent in November.

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, declined 5.4 percent in January from a 5.8 percent drop in December.

Analysts said this pointed to a sharper contraction in first quarter gross domestic product than currently being forecast.

"We have been looking for signs that the economy's rate of decline might be slowing, but can't find any," said Nigel Gault chief U.S. economist at IHS Global Insight in Lexington, Massachusetts.

"The fourth quarter GDP decline is likely to be revised to a fall of over 5 percent. The first quarter will be worse."

Data on Friday is expected to show that the economy contracted at a faster pace in the fourth quarter than the 3.8 percent decline the government estimated last month.

In another report, the Commerce Department said new home sales plunged 10.2 percent to a 309,000 annual pace, the lowest on records dating back to 1963, from 344,000 in December.

The median sales price in January tumbled 13.5 percent to $201,100 from a year earlier, the lowest level since December 2003, the department said. The percentage decrease was the largest since July 1970.

The inventory of homes available for sale in January was 342,000, the lowest in more than five years. However, because of the weak January sales pace, the supply of homes available for sale now equals 13.3 months, a record high.

Analysts are closely watching the supply of houses on the market for signs as to when the housing downturn will start bottoming. Many believe stability could return in the second half of the year, but much depends on whether the government's plans to prop up the fractured financial sector succeeds.

(Additional reporting by Alister Bull; Editing by Chizu Nomiyama)