Recession worry mounts on weak GDP, job claims

By Alister Bull

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."