Recession worry mounts on weak GDP, job claims

WASHINGTON (Reuters) - The sluggish U.S. job market deteriorated further last week, adding to troubling signs for an economy that barely grew in the final quarter of 2007, according to government reports on Thursday.

Labor Department data showed first-time claims for jobless benefits increased by 19,000 last week to a seasonally adjusted 373,000, a level considered to be near-recessionary by some and raising risks of a poor monthly payrolls report next week.

Separate data showed gross domestic product, which measures total goods and service output in the United States, rose in the fourth quarter at a glacial annual rate of 0.6 percent, slowing almost to a halt from the rapid 4.9 percent pace in the previous three months.

The growth rate was the same as the Commerce Department's first estimate delivered a month ago, defying expectations of an upward revision and heightening fears that the world's largest economy may slip into recession this year.

The GDP report also contained worrying inflation data and new record highs in oil prices stoked fears the economy would be hit by the double blow of weak growth and unrestrained price growth, recalling memories of 1970s-style "stagflation".

Federal Reserve Chairman Ben Bernanke said the U.S. central bank was trying to balance a number of economic risks, including inflation, but dismissed comparisons with the stagnation of the 1970s, when inflation hit double digits.

"I don't anticipate stagflation," Bernanke said under questioning by the Senate Banking Committee. "I don't think we're anywhere near the situation that prevailed in the 1970s. I do expect inflation will come down."

NO RECESSION - BUSH

U.S. stocks .DJI .SPX .IXIC fell nearly 1 percent as the data weighed on sentiment while the dollar slid to a record low against the euro EUR= for a third consecutive day.

Government bonds, which usually gain on signs of economic weakness, rallied as investors scurried into safe havens and left behind inflation concerns for the time being.

U.S. crude surged as high as $102.97 a barrel, breaking the inflation-adjusted peak of $102.53 hit in 1980.

Economic growth was slowed by a collapse in spending on new homes and a slump in inventories and was slightly weaker than the 0.7 percent pace forecast by analysts polled by Reuters.

For all of last year GDP grew 2.2 percent, the weakest since 2002, the Commerce Department said.

Some analysts say the economy has already slipped into recession, but U.S. President George W. Bush disagreed.

"There is no question the economy has slowed down," he told a White House news conference. "I don't think we're headed into a recession, but there is no question we are in a slowdown."

In the GDP report, the personal consumption expenditures price index excluding food and energy, the Fed's favored inflation gauge, was unrevised, rising at an 2.7 percent annual rate in the fourth quarter.

While that matched forecasts, it is above the perceived comfort zone of Fed policy-makers, which tops out at about 2 percent, and follows a 2 percent rise in the previous quarter.

BAD JOBS

To many in the markets the jobs data was the worst in a day of bad news because it is the most contemporary and could weigh heavily on the outlook for the future if it signals a trend.

"It's the jobless claims report that sticks out," said Omer Esiner, market analyst at Ruesch International in Washington.

"This points to continued slowdown in employment which will fuel concerns about a recession in the U.S. and certainly adds to the camp of data that is clearly dollar-negative," he said.

The Conference Board, in a separate report, said its index of help-wanted ads in U.S. newspapers edged down in January and warned the labor market could 'grind to a halt.'

In further signs of a weakened jobs market, the number of workers remaining on jobless benefits rose to 2.81 million in the week ended February 16, the most recent week these data were available, the Labor Department said. That was the highest since October 2005 in the aftermath of Hurricane Katrina.

Based on the jobless claims, economists at Lehman Brothers lowered their estimate for February's payrolls report to just 15,000 new jobs from a previous estimate of 35,000. Non-farm payrolls unexpectedly shrank 17,000 in January. The report is due on March 7.

(Additional reporting by Joanne Morrison, David Lawder and David Alexander in Washington and Burton Frierson in New York; Editing by James Dalgleish)