WASHINGTON – More evidence of consumers' weary state and the nation's deteriorating job market came Thursday with reports that people continuing to draw unemployment benefits climbed to a 26-year high, while retail sales and orders to U.S. factories sank.
The number of newly laid-off people signing up for unemployment benefits last week dropped by 21,000 to 509,000, the Labor Department reported. Even with the drop — which was better than the increase economists were forecasting — the level of jobless applications was still quite high and pointed to a deeply troubled employment climate.
The number of people continuing to draw unemployment benefits last week climbed to 4.09 million, a 26-year high.
AT&T, the Dallas-based telecommunications giant, announced it will slash 12,000 jobs — or about 4 percent of its work force — in response to all the economic troubles. Job reductions will take place this month and into next year.
A grim picture was forming as retailers reported their November sales Thursday.
Costco Wholesale Corp., usually a strong performer, reported a bigger-than expected drop in same-store sales. Other retailers that saw declines in same-store sales are Bon-Ton Stores Inc., Limited Brands Inc. and Pacific Sunwear of California Inc. Same-store sales, or sales at stores open at least a year, are considered a key indicator of a retailer's health.
All told, the Goldman Sachs-International Council of Shopping Centers sales index of retailers is expected to show a 1 percent drop in November, slightly worse than the 0.9 percent decline in October. That would be the weakest November performance since at least 1969 when the index began.
"Basically shoppers and workers are being told there is no Santa Claus," said Richard Yamarone, an economist at Argus Research.
Orders to U.S. factories plunged in October by the sharpest amount in over eight years as a deepening recession caused big cutbacks in demand for steel, autos, computers and heavy machinery, the Commerce Department said.
Factory orders dropped 5.1 percent in October, the largest decrease since an 8.5 percent fall in July 2000. It also was larger than the 4 percent drop that economists had been expecting. They believe manufacturing will continue to be under pressure for many more months, reflecting a deepening recession that is already the longest slump in a quarter-century.
Wall Street received the grim economic reports with relative calm. The market has advanced in seven of the last eight sessions, a sign that some stability is returning to the Street. The Dow Jones industrials were down about 40 points in morning trading.
Elsewhere, central banks in Europe, in a series of separate moves, slashed their key interest rates Thursday to cushion fallout from the financial crisis, which is hobbling economies worldwide.
The European Central Bank dropped its rate to 2.5 percent, from 3.25 percent. The Bank of England lowered its rate to 2 percent, the lowest since 1951. The Swedish Riksbank cut its key rate, by a record 1.75 percentage points to 2 percent.
Federal Reserve Chairman Ben Bernanke, meanwhile, will speak about the housing crisis, which has driven up foreclosures and forced financial companies to log massive losses on soured mortgage investments. The housing debacle touched off the worst financial crisis since the 1930s that Bernanke and Treasury Secretary Henry Paulson have been desperately trying to bring under control.
And the chiefs of Chrysler LLC, General Motors Corp. and Ford Motor Co. returned to Capitol Hill Thursday to make a fresh plea for as much as $34 billion in emergency aid. Trying to win over skeptical lawmakers, automakers and their union on Wednesday promised labor concession and restructuring. Were one or more of Detroit's Big Three to fail, that would deepen the recession and cause more job losses, industry officials warned.
Heading into the holidays, the country's economic picture has darkened further, according to a Federal Reserve survey of business conditions around the country released on Wednesday. Americans hunkered down, forcing retailers to ring up fewer sales and factories to cut back on production.
The survey suggested the country was sinking deeper into recession.
"Economic activity weakened across all Federal Reserve districts," the report concluded.
The Fed didn't use the word "recession," but just two days earlier the National Bureau of Economic Research declared what many Americans already knew in their bones: that the country had been suffering through one since last December.
To cushion the fallout, Bernanke said Monday that the central bank is prepared to lower its key interest rate and to explore other ways to revive economic activity. Many economists predict the Fed will cut its rate — now near a historic low of 1 percent — at its last scheduled meeting this year on Dec. 16.
"We've seen things fall off a cliff," said economist Ken Mayland, president of ClearView Economics. "Everybody — consumers and businesses — are just freezing."
"Retailers were preparing for a relatively slow holiday sales season," the Fed report said. New York retailers said the holiday sales season is likely to feature more discounted prices on merchandise than last year. Some retailers in the Fed regions of Boston, Philadelphia, Cleveland and Dallas planned to cut capital spending projects for 2009.
Consumer spending — which includes retail sales — is a major shaper of national economic activity. But job cuts, tanking investment portfolios and sinking home values have made American consumers wary of spending.
The economy jolted into reverse in the summer as consumers slashed their spending by the most in 28 years.
Many believe the economy will continue to shrink through the rest of this year and into the first quarter of next year. At 12 months and counting, the current recession is longer than the 10-month average length of recessions since World War II. The record for the longest recession in the postwar period is 16 months, which was reached in the 1973-75 and 1981-82 downturns.