By Bob Willis
Dec. 18 (Bloomberg) -- The number of Americans filing first-time claims for unemployment benefits held near a 26-year high, signaling the labor market is deteriorating as the economy heads into a second year of a recession.
Initial jobless claims dropped by 21,000 to 554,000 in the week that ended Dec. 13, from a revised 575,000 the prior week that was the highest since 1982, the Labor Department said today in Washington. The number of people staying on benefit rolls also slipped from an almost three-decade high.
The job market is deteriorating as consumers pull back on spending amid a credit crisis and a year-long recession that economists project will extend will into 2009. President-elect Barack Obama, who takes office Jan. 20, has pledged to enact a stimulus plan to save or create 2.5 million jobs.
“This is exactly the stage of the recession where businesses are aggressively cutting employment,” Mickey Levy, chief economist at Bank of America Corp. in New York, said in a Bloomberg Television interview. “I expect the pace of layoffs to continue.”
Treasuries rose, pushing yields lower. The benchmark 10- year note yielded 2.1 percent as of 8:40 a.m. in New York, down 10 basis points from yesterday and close to a record low. Stock- index futures were higher.
Jobless claims were projected to decline to 558,000 from the 573,000 initially reported the previous week, according to the median projection of 42 economists in a Bloomberg News survey. Estimates ranged from 530,000 to 600,000.
Post-Holiday Surge
Last week’s drop in initial claims followed a surge in claims the week immediately after Thanksgiving, which tends to be the busiest of the year for first-time filings, according to a Labor spokesman.
The report covers the week the Labor Department surveys businesses to calculate this month’s change in payroll employment.
U.S. employers eliminated 533,000 jobs in November, the most since 1974, and the unemployment rate increased to a 15- year high of 6.7 percent, the government said Dec. 5. The economy has lost 1.9 million jobs so far this year as payrolls dropped for 11 consecutive months.
The four-week moving average of initial claims, a less volatile measure, signals job losses intensified this month. The average rose to a 26-year high of 543,750 for the period ended Dec. 13 from 507,000 during November’s employment survey week, today’s report showed.
The unemployment rate among people eligible for benefits, which tends to track the jobless rate, held at 3.3 percent, a 16-year high. These data are reported with a one-week lag.
Regional Breakdown
Forty-six states and territories reported an increase in new claims in the week ended Dec. 6, while six reported a decrease. The biggest increases were reported by North Carolina, reflecting firings at textile mills and furniture manufacturers, and California, where service industries pared staff.
Jobless claims reflect weekly firings and tend to rise as job growth -- measured by the monthly payroll report -- slows.
The number of applications for jobless benefits are likely to rise even more in the coming month. General Motors Corp., Ford Motor Co. and Chrysler LLC will shutter about 59 factories over the next month as they struggle to adapt to the worst sales in 26 years and await a verdict on a U.S. rescue of the industry.
Chrysler Shutdown
Chrysler said yesterday it will shut all 30 of its plants for at least a month starting tomorrow, and Ford plans to idle nine of 15 North American assembly plants in the first week of January.
The economy entered a recession in December 2007, the National Bureau of Economic Research announced Dec. 1. Economists surveyed by Bloomberg this month forecast continued contraction in the first half of 2009 and an increase in the unemployment rate to 8.2 percent by the end of the year.
Obama may ask Congress next year to approve a stimulus plan of around $850 billion, according to a transition adviser. The amount would exceed initial estimates by House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid, as well as surpassing what some economists and the International Monetary Fund say is required.
The incoming administration believes the amount, about 6 percent of the U.S.’s $14 trillion economy, is needed to reverse rising unemployment, said the adviser, who spoke on condition of anonymity.
Fed Decision
Noting that “labor-market conditions have deteriorated,” the Federal Reserve this week cut its key target rate to as low as zero from 1 percent and pledged to “employ all available tools” to restore growth in the flagging economy.
Financial services companies are joining manufacturers and construction firms in cutting staff as demand weakens and the credit crisis deepens.
Goldman Sachs Group Inc. eliminated 2,500 jobs in the quarter ended Nov. 28 and slashed average pay per worker 45 percent to $363,654 as the firm posted the first quarterly loss since going public almost a decade ago, the company said yesterday.
Charles Schwab Corp., the second-largest independent brokerage by client assets, plans to cut more than 100 jobs as the drop in U.S. stocks lowers revenue next year, the San Francisco-based company said in a statement Dec. 15.
“We expect to see stiff headwinds from an unprecedented financial environment,” Chief Executive Officer Walter Bettinger said in the statement.
To contact the reporters on this story: Bob Willis in Washington at bwillis@bloomberg.net
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