WASHINGTON – New claims for unemployment benefits jumped last week to a 16-year high, the Labor Department said Thursday, providing more evidence of a rapidly weakening job market expected to get even worse next year.
The government said new applications for jobless benefits rose to a seasonally adjusted 542,000 from a downwardly revised figure of 515,000 in the previous week. That's much higher than Wall Street economists' expectations of 505,000, according to a survey by Thomson Reuters.
That is also the highest level of claims since July 1992, the department said, when the U.S. economy was coming out of a recession.
The four-week average of claims, which smooths out fluctuations, was even worse: it rose to 506,500, the highest in more than 25 years.
In addition, the number of people continuing to claim unemployment insurance rose sharply for the third straight week to more than 4 million, the highest since December 1982, when the economy was in a painful recession.
The financial markets fell on the news. The Dow Jones industrial average dropped about 160 points in morning trading, and broader indexes also fell.
The measure would provide seven additional weeks of payments to those who have exhausted their benefits. Those in states where the unemployment rate is above 6 percent would be eligible for an additional 13 weeks beyond the 26 weeks of regular benefits. Benefit checks average about $300 a week nationwide.
Without the legislation, its proponents say, 1.1 million people will have exhausted their unemployment insurance by the end of the year.
Elsewhere Thursday, the New York-based Conference Board said its monthly forecast of economic activity declined 0.8 percent in October, worse than the 0.6 percent decrease analysts expected. The economy's health worsened last month as stocks, building permits and consumer expectations all fell, the private research group said. Over the last seven months, the index declined at a 4.7 percent annual rate, faster than any decline since 2001.
The high level of continuing unemployment claims partly reflects growth in the labor force, which has increased by about half since the early 1980s. The percentage of workers continuing to receive benefits — which is different from the unemployment rate — increased to 3 percent, the highest since June 2003. Less than half of unemployed workers receive unemployment insurance.
Joshua Shapiro, chief U.S. economist at MFR Inc., a consulting firm, said the four-week average of continuing claims is 49 percent higher than it was a year ago. That "indicates that those who are unemployed are finding it increasingly difficult to get re-employed."
Shapiro wrote in a note that the number of claims indicates that net job reductions by employers could top 400,000 this month, up from 240,000 in October, when the unemployment rate reached 6.5 percent. Companies have cut 1.2 million jobs so far this year.
Many economists expect unemployment to reach 7 percent by early next year and 8 percent by the end of 2009. Last year the rate averaged 4.6 percent.
The Federal Reserve on Wednesday released projections that the jobless rate will climb to between 7.1 percent and 7.6 percent next year, according to documents from the Fed's Oct. 29 closed-door deliberations on interest rate policy.
Initial claims have been driven higher in the past several months by a slowing economy hit by the financial crisis, and cutbacks in consumer and business spending.
Economists consider jobless claims a timely, if volatile, indication of how rapidly companies are laying off workers. Employees who quit or are fired for cause are not eligible for benefits.
Companies from a wide range of sectors have announced layoffs recently, including Citigroup Inc., Union Pacific Corp., Boeing Co., Wyeth, Sun Microsystems Inc., and poultry maker Pilgrim's Pride Corp.