By Bob Willis
Jan. 8 (Bloomberg) -- The number of Americans collecting unemployment benefits surged to a 26-year high as the labor market worsened in a yearlong recession.
Initial jobless claims unexpectedly fell by 24,000 to 467,000 in the week that ended Jan. 3, the lowest level in almost three months, the Labor Department said today in Washington. The total number of people getting benefits rose a week earlier to 4.6 million, the most since 1982.
While the government projects a surge in firings in late December and early January, job cuts may have come earlier last year as sinking sales and the worst credit conditions in seven decades forced companies such as General Motors Corp. and Chrysler LLC to pare costs. The claims report comes hours before President-elect Barack Obama delivers a speech on the economic outlook in a bid to build support for his stimulus plan.
“The labor market is just hemorrhaging here,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York, who correctly forecast claims would fall. “Just look at the continuing claims numbers, they give you a better idea of what is going on. Nobody can find work once they’re fired.”
Jobless claims were projected to rise to 545,000, according to the median projection of 35 economists in a Bloomberg News survey. Estimates ranged from 480,000 to 600,000. Claims in the prior week were revised to 491,000 from 492,000.
December Jobs
The government may report tomorrow the economy lost another 510,000 jobs in December, bringing the 2008 total to a six- decade high of 2.4 million, according to economists surveyed by Bloomberg. The unemployment rate probably jumped to 7 percent, the highest level since 1993.
Economists surveyed last month projected the rate will climb to 8.2 percent by the end of 2009, signaling job cuts are likely to keep rising. Martin Feldstein, a Harvard University professor and former adviser to President Ronald Reagan, yesterday predicted during an interview on Bloomberg Television that the jobless rate may eventually exceed 10 percent.
In excerpts of the speech due at 11 a.m. Washington time, Obama warned that without immediate steps by the government to revive the economy, family incomes will drop, the unemployment rate could reach “double digits” and the U.S. risks losing a “generation of potential and promise.”
Obama has pledged his plan will save or create 3 million jobs over the next two years.
Moving Average
The four-week moving average of claims, a less volatile measure, fell to 525,750 for the period ending Jan. 3, compared with 552,750 the prior week, today’s report showed.
Automakers were among companies shutting down operations last year earlier than the government anticipated, leading to a jump in claims when the figures are adjusted for seasonal variations. Those increases reverse in later weeks when the Labor Department’s computations project the firings will take place.
MFR’s Shapiro also said the numbers are being influenced by changing patterns in retail employment this year. Since merchants expected a drop in sales, they hired fewer workers and, as a result, now need to fire fewer seasonal employees than usual, he said.
The unemployment rate among people eligible for benefits, which tends to track the jobless rate, held at 3.4 percent. The unemployment rate, continuing claims and the state claims figures are reported with a one-week lag.
Thirty-two states and territories reported a decrease in new claims for the week ended Dec. 27, while 21 showed an increase.
Seasonal Changes
Jobless claims reflect weekly firings and tend to rise as job growth -- measured by the monthly payroll report -- slows.
The economy entered a recession in December 2007, the National Bureau of Economic Research announced Dec. 1. Economists surveyed by Bloomberg early last month projected gross domestic product would shrink in the fourth quarter by 4.3 percent, the biggest decline since 1982, and would continue contracting through the first half of 2009.
Federal Reserve policy makers saw “substantial” risks to the economy last month as they cut the benchmark interest rate to a record low and pledged o expand emergency loans if necessary.
“Conditions in the labor market deteriorated considerably in recent months as most major industry groups shed jobs,” the Fed said this week as it released minutes of the Dec. 15-16 monetary policy meeting.
GM, Chrysler
As General Motors and Chrysler last month sought billions of dollars in loans to keep operating, the major U.S. automakers also idled or slashed production to clear out inventories.
Chrysler idled all 30 of its assembly plants on Dec. 17 for at least a month, while Ford said 9 of 15 North American factories would shut for the first week in January. GM announced output cuts Dec. 12 that affected 20 plants.
Firings are rippling from manufacturers and construction companies to service industries as demand falters.
EMC Corp., the world’s biggest maker of storage computers, said yesterday it will cut about 2,400 positions, about seven percent of its workforce.
Retailers including Talbots Inc. and Sears Holdings Corp. may close 73,000 stores in the first half of the year, according to the International Council of Shopping Centers, as job losses and economic concerns keep consumers from the shops. Sales at stores open at least a year fell as much as 2 percent in November and December even as stores offered discounts of 65 percent or more.
To contact the reporter on this story: Bob Willis in Washington bwillis@bloomberg.net
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