Jobless Claims at 524,000 as Recession Takes Toll

The number of U.S. workers filing new claims for unemployment aid rebounded last week after a brief slowdown, data showed on Thursday, as employers slashed jobs to cope with a worsening economic downturn.

Initial claims for state unemployment insurance benefits rose to a seasonally adjusted 524,000 in the week ended Jan. 10, beating analysts' forecasts for an increase to 500,000. and the prior week's reading of 470,000 the prior week.

It was the highest reading for initial claims since the week ending Dec. 20. Recent figures had been distorted by holidays-shortened weeks.

The Labor Department report, together with news that manufacturing in New York state shrank for a fifth straight month in January, added to fears that the already year-long U.S. recession will be the longest since the Great Depression.

"New jobless claims were higher than expected but they are not back at the highs of early December," said David Sloan, an economist at 4CAST Ltd in New York. However, "it suggests January payrolls will be another weak number."

Data last week showed 524,000 were laid off in December, driving the unemployment rate to 7.2 percent, its highest level in almost 16 years.

U.S. equity index futures stayed lower after the data, while U.S. Treasury debt prices erased gains. The U.S. dollar held on to gains.

But the sharp economic downturn is keeping a lid on inflation pressures, stoking fears of deflation, which could complicate the recovery process.

The Labor Department said the producer price index fell 1.9 percent in December, sliding for a fifth straight month, after dropping 2.2 percent the previous month. This was partly due to a record drop in gasoline prices.

"We are heading into deflationary environment in 2009," said Kurt Karl, chief U.S. economist at Swiss Re in New York.

Analysts polled by Reuters had forecast a 2 percent decline in the overall index. Compared to the same period last year, the producer price index fell 0.9 percent, the lowest reading since October 2006, when the index decreased by 1.2 percent.

Core producer prices excluding food and energy costs increased by 0.2 percent in December, slightly above market expectations for a rise of 0.1 percent. Core PPI rose 0.1 percent in November.

Core producer prices were up 4.3 percent over the last 12 months, the highest since October's reading of 4.4 percent. Energy prices dropped 9.3 percent in December, falling for the fifth straight month, while gasoline prices plunged 25.7 percent, matching the record drop set the previous month.

Gasoline accounts for about 7.4 percent of PPI.

A separate report showed the New York Federal Reserve's Empire State factory index at an anemic -22.20 this month, up from a downwardly revised -27.88 in December. Omens about the future were no better.

"The future general business conditions index, along with a number of other forward-looking indicators, fell below zero for the first time in the survey's history," the report said.

The survey found that firms see their workforces shrinking by 2.4 percent on average in the coming year.

Another report by the Philadelphia Federal Reserve bank showed factory activity in the Mid-Atlantic region contracted in January, but less severely than expected, a survey showed Thursday.

The Philly Fed reported its business activity index at minus 24.3 after a reading of minus 36.1 for December.

Any reading below zero indicates contraction in the region's manufacturing sector. Economists had expected a result of minus 35.0, according to the median of 54 forecasts in a Reuters poll which ranged from minus 41.3 to negative 23.7.

The survey of factories in eastern Pennsylvania, southern New Jersey and Delaware is seen as one of the first monthly indicators of the health of the U.S. manufacturing sector.

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