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Unemployment Claims Spike Unexpectedly

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The Associated Press

Published: September 5, 2008

WASHINGTON - Jobless claims rose unexpectedly last week, the government said Thursday, while companies responded to the slowing economy by producing more with fewer workers.

It was not great news for American workers, who have seen jobs decline and wages erode, but it may signal fewer inflation worries for the Federal Reserve.

The Labor Department reported that new applications for unemployment insurance rose to a seasonally adjusted 444,000, up 15,000 from the previous week. Economists had expected claims to drop to 420,000.

That news, plus disappointing sales reports from retailers, sent financial markets down as investors lost hope for an end-of-the-year recovery. The Dow Jones Industrial Average dropped 344.65, or 2.99 percent, to 11,188.23, its worst tumble since June 26, when it fell more than 3.03 percent. The Standard & Poor's 500 index fell 2.99 percent, and the Nasdaq composite index slid 3.20 percent.

Stocks fell even though the price of oil dropped to its lowest level in five months on worries that the slowing global economy would curtail energy demand from businesses and consumers.

Many economists expect unemployment will continue to rise for the rest of the year. A separate report on Thursday indicated that hiring by companies in the service sector has declined.

"Across the board, we're seeing evidence that labor conditions are worsening," said Carl Riccadonna, senior economist at Deutsche Bank Securities.

A tougher job market can crimp consumer spending as laid-off workers and those who fear for their jobs cut back on their purchases. That can further weaken the economy.

"The second half of this year does not look good," Riccadonna said. "Consumer spending is stalling."

Richard Fisher, president of the Federal Reserve Bank of Dallas, also predicted a weak economy for the next several months.

"I think it is very likely we will suffer anemic growth for the current and perhaps the next couple of quarters," he said in a speech in Houston.

The four-week moving average of claims fell slightly to 438,000, down 3,250 from the previous week. Initial claims stood at 320,000 in the same week last year.

While Thursday's figure is below the six-year high of 457,000 reached in late July, economists attributed some of the earlier increase to an outreach program by the Labor Department to notify individuals about the availability of extended benefits.

The distortions from that program have likely faded, several economists said, meaning that the sluggish economy is increasingly to blame.

"We'll be above 6 percent unemployment by Thanksgiving," said Ken Goldstein, an economist at the Conference Board, a business research group based in New York. "We might even be there by Halloween."

In another sign of labor market weakness, the number of people continuing to receive unemployment benefits rose 6,000 to 3.44 million for the week ending Aug. 23, a five-year high.

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