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Jobless Claims At 26-Year High

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By CHRISTOPHER S. RUGABER

The Associated Press

Published: December 25, 2008

WASHINGTON - New claims for unemployment benefits rose more than expected last week, the government said Wednesday.

And consumers cut back on their spending for the fifth straight month in November.

But excluding price changes, consumer spending would have actually risen by 0.6 percent in November. The November increase excluding inflation was the best showing in more than three years.

The Labor Department reported Wednesday that initial requests for jobless benefits rose to a seasonally adjusted 586,000 in the week that ended Saturday, from an upwardly revised figure of 556,000 the previous week. Last week's figure is much more than the 560,000 expected by economists.

The 586,000 is 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 Wednesday. The Dow Jones industrial average rose 48.99, or 0.58 percent, to 8,468.48 after falling for five straight sessions. The Standard & Poor's 500 index rose 4.99, or 0.58 percent, to 868.15, and the Nasdaq composite index rose 3.36, or 0.22 percent, to 1,524.90.

The Commerce Department said consumers reduced their spending by 0.6 percent in November, after 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, followed by the 0.6 percent November increase.

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 the experts 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 the current quarter, after 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 think the contraction is accelerating 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.

A Labor Department analyst said auto-related layoffs were a factor behind last week's rise in jobless claims. The four-week average of initial claims rose to 558,000. That's the highest since December 1982, when the economy was emerging from a steep recession.

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