WASHINGTON – New claims for jobless benefits increased by more than expected last week as companies cut jobs due to the slow economy, the Labor Department said Thursday.
The Labor Department said new applications for unemployment benefits rose 15,000 to a seasonally adjusted 478,000, above analysts' estimates of 470,000.
Former Federal Reserve Chairman Alan Greenspan said the job market will likely get worse.
"Given the financial damage to date, I cannot see how we can avoid a significant rise in layoffs and unemployment," Greenspan told a House committee Thursday.
The stock market initially fell on the news but then recovered. The Dow rose 173 points, or about 2 percent, in midmorning trading, while the S&P 500 was up 15 points, or about 1.6 percent.
The Goldman Sachs Group Inc. said Thursday it will cut about 3,260 jobs, or about ten percent of its work force, in the face of the financial meltdown that has eliminated several of its rival investment banks.
Meanwhile, Yahoo Inc. said Tuesday that it plans to cut 10 percent of its employees, or 1,500 people, in the next two months. Financial services firm National City Corp. also said Tuesday that it would cut 4,000 jobs.
Analysts expect work will be harder to come by as companies not only eliminate jobs but also cut back on hiring.
"There is every reason to expect hiring to drop in the wake of the disaster in the stock markets and the continued tightening of credit," Ian Sheperdson, chief U.S. economist at High Frequency Economics, wrote in a note to clients.
Jobless claims above 400,000 are considered a sign of recession. A year ago, claims stood at 333,000, the department said.
The four-week average, which smooths out fluctuations, dropped slightly from a seven-year high to 480,250.
Many economists expect the U.S. economy to decline this quarter and next, meeting one classic definition of a recession.
Higher unemployment may worsen the economic downturn, as consumers — fearful for their jobs — cut back on spending. Consumer spending accounts for about 70 percent of the economy.
The number of people continuing to claim unemployment insurance dropped by 6,000 to a seasonally adjusted 3.72 million, down from 3.73 million, a five-year high.
But three weeks ago, new benefit applications reached 499,000, the highest level in seven years and the second-highest since 1992.
Claims were also higher last week because of the impact of Hurricane Ike in Texas, the department said, which added about 12,000 requests for unemployment benefits, the same as the previous week.
Other companies that have announced layoffs this week include Chrysler LLC, which said Thursday that it would eliminate 1,825 jobs by cutting a shift at a Toledo, Ohio Jeep plant and accelerating the closure of a sport utility vehicle factory in Newark, Del.
Xerox Corp. said it plans to cut 3,000 jobs, or 5 percent of its work force, because a slowdown in orders from large U.S. companies has dragged down the printer and copier maker's profit margins.
Drugmaker Merck & Co. said Wednesday it will cut 7,200 jobs as part of a restructuring, after its third-quarter profit dropped 28 percent.