U.S. Jobless Claims Reach Seven-Year High of 516,000

By Bob Willis

Nov. 13 (Bloomberg) -- First-time claims for U.S. unemployment insurance rose last week to the highest level since September 2001, when the economy was last in a recession, as weakening demand led companies to fire more workers.

Initial jobless claims increased by 32,000 to a larger- than-forecast 516,000 in the week ended Nov. 8, from a revised 484,000 the prior week, the Labor Department said today in Washington. The total number of people on benefit rolls jumped to the highest level since 1983.

Restrictive credit and slumping demand are causing companies to retrench by trimming payrolls and investment. Rising joblessness will further squeeze consumer spending, which accounts for more than two-thirds of the economy, and threaten a protracted downturn, economists said.

``The labor market is only reinforcing a very pessimistic picture,'' Linda Barrington, a labor economist at the Conference Board, said in a Bloomberg Television interview. ``When you start to see the downward pressure on wages as well as the credit crunch, that's only going to make consumers much more nervous.''

Trade Deficit Narrows

Another government report showed the U.S. trade deficit narrowed more than forecast in September as a record decline in the cost of foreign crude oil caused fuel imports to tumble. The gap shrank 4.4 percent to $56.5 billion, the smallest in almost a year, from $59.1 billion in August, the Commerce Department said today in Washington. Excluding petroleum, the deficit widened as overseas sales of American-made goods dropped by the most since 2001.

Economists surveyed by Bloomberg had anticipated a reading of 480,000, based on the median of 40 projections in a Bloomberg News survey, from the originally reported 481,000 in the prior week. Estimates ranged from 465,000 to 500,000 initial claims.

The total number of Americans receiving jobless benefits rose to 3.897 million in the week ended Nov. 1, the highest level since January 1983.

The four-week moving average of initial claims, a less volatile measure, rose to 491,000 last week, the highest since March 1991, from 477,750 a week earlier. So far this year, weekly claims have averaged 400,600, compared with an average of 321,000 for all of 2007, when the economy added a total of 1.1 million jobs.

The unemployment rate among people eligible for benefits, which tends to track the jobless rate, held at 2.9 percent. These data are reported with a one-week lag.

Thirty-six states and territories reported an increase in new claims, while 17 reported a decrease.

Unemployment Rate

The labor market is weakening as the economy appears to be in its first downturn since 2001. The jobless rate rose to 6.5 percent in October, the highest since 1994, the government said last week.

Employers cut 240,000 jobs last month, for a total so far this year of 1.2 million jobs lost, while the total number of unemployed Americans jumped to 10.1 million, the highest level in a quarter century, according to last week's jobs report from the Labor Department.

Job Cuts

The monthly non-farm payrolls numbers reflect job growth and they tend to fall as the weekly initial jobless claims figures, which reflect firings, rise.

Companies are trimming staff as consumer spending is forecast to fall through at least March, according to economists surveyed by Bloomberg early this month. Banks, faced with mounting losses and writeoffs as the financial crisis spread over the past year, have been sacking thousands of workers.

Citigroup Inc. and Goldman Sachs Group Inc., faced with a weakening economy and the prospect of mounting losses, began firing workers as part of the firms' plans to cut more than 12,000 jobs, people with knowledge of the matter said last week.

Goldman, which converted last month from the biggest U.S. securities firm into a commercial bank, on Nov. 5 began telling about 3,200 employees, or 10 percent of its workforce, they were out of a job, according to one of the people who declined to be identified because the decisions were confidential.

Citigroup began notifying staff last week who are affected by the bank's plan to discard 9,100 positions over the next 12 months, or about 2.6 percent of its headcount, another person said.

Both New York-based firms have already cut staff, and are among the banks and brokerages worldwide that have shed almost 150,000 jobs since the subprime mortgage market collapsed last year.

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net