Jobless Claims Rise to Highest Level in 7 Years

In signs of a further weakening economy, separate reports showed the number of workers filing new claims for jobless benefits rose, while the number of new factory orders dropped.

The number of U.S. workers filing new claims for jobless benefits rose to their highest in seven years due to the impact of hurricanes Ike and Gustav, the government said in a report on Thursday.

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The number of initial jobless claims was 497,000 in the week ended Sept. 27, the highest since 517,000 in the week ended Sept. 29, 2001 and above Wall Street economists' forecasts of 475,000.

"It is estimated that the effects of Hurricane Gustav in Louisiana and the effects of Hurricane Ike in Texas added approximately 45,000 claims to the total," the Labor Department said in its weekly report.

Meanwhile, factory orders plunged by the largest amount in nearly two years as the credit strains are hitting manufacturing with full force.

The Commerce Department reported Thursday that orders for manufactured goods dropped by 4 percent in August, compared to July. That's a much worse performance than the 2.5 percent decline that economists had expected. It was the biggest setback since a 4.8 percent plunge in October 2006.

The weakness was led by big declines in orders for aircraft, down 38.1 percent, and autos, which fell by 10.6 percent, the worst performance in nearly six years.

Economists said the jobless claims report showed the economy was being rattled by forces other than the hurricanes, adding that the numbers were at high levels even when the impact of the storms was filtered out.

"The underlying claims reflect an upward trend in unemployment," said Dana Saporta, economist at Dresdner Kleinwort Securities in New York. "The unemployment rate may settle back to 6 percent temporarily due to the teenagers going back to school from their summer job search."

But "our view is the unemployment rate will peak about 6.7 percent next year," Saporta said.

Steve Goldman, market strategist at Weeden in Greenwich, Connecticut, agreed "the economic picture is going to get worse," but the stock market's 9-percent drop last month showed investors already know that.

The four-week average of new jobless claims, a better guage of underlying labor trends because it irons out week-to-week volatility, rose to 474,000 to 462,500 the week before.

That was also the highest reading in seven years, or since Oct. 27, 2001, when it was 480,750, the department said.

The measure has mounted steadily as the U.S. housing slump and resulting strain in the financial services industry has chilled growth and crimped hiring.

The number of people remaining on the benefit rolls after drawing an initial week of aid increased 48,000 to 3.591 million, the highest since the week ended September 6 2003.

Analysts had estimated so-called continued claims to be 3.55 million. It was the 23rd straight week that claims were above 3 million, in another sign that the slowing economy is making it harder for U.S. workers to find jobs.

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