Thursday, November 20, 2008

U.S. Economy: Jobless Claims Near Highest Since 1982 (Update1)

By Bob Willis and Shobhana Chandra

Nov. 20 (Bloomberg) -- The number of Americans filing for unemployment benefits approached a 26-year high, and a gauge of the economy's future performance dropped, sending yields on benchmark Treasuries to record lows.

Initial jobless claims climbed to a higher-than-forecast 542,000 in the week ended Nov. 15, the Labor Department said today in Washington. The Conference Board's index of leading economic indicators declined 0.8 percent, and a measure of manufacturing in the Philadelphia region fell to an 18-year low.

The U.S. stock market's benchmark index headed for its biggest annual decline on record, and yields on two-, five- and 30-year Treasuries posted historic lows as confidence in the economic outlook evaporated. The turmoil may intensify pressure on the Federal Reserve and incoming President Barack Obama's administration to take fresh steps to shore up the economy.

``The economic contraction appears to be worsening,'' said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. ``The stock markets are plunging, people are retrenching and manufacturing activity is virtually falling off a cliff. The increase in layoffs can only worsen the economic downturn.''

First-time jobless claims last week were the highest since 1982, with the exception of a one-week jump in filings in July 1992 caused by temporary layoffs at General Motors Corp. The number of people staying on benefit rolls rose to 4.012 million, the most since December 1982, in the week to Nov. 8.

Economists' Forecasts

Economists surveyed by Bloomberg News had anticipated a reading of 505,000 for last week, based on the median of 40 projections. Claims for the prior week were revised to 515,000 from 516,000.

``This is a reflection of the level of caution that hit the economy in October,'' said Jonathan Basile, an economist at Credit Suisse Holdings Inc. in New York. He added that payroll losses, already totaling 1.2 million this year, will likely ``get worse before they get better.''

The Standard & Poor's 500 Stock Index plunged 6.7 percent to close at 752.44, its lowest level in 11 years, extending its decline for the year to 49 percent. Ten-year Treasury yields dropped to 2.99 percent, a record low, from 3.32 percent late yesterday, and two-year yields slid below 1 percent.

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 write-offs as the financial crisis spread over the past year, have been sacking thousands of workers.

Citigroup Losses

Citigroup Inc., the fourth-largest U.S. bank, will eliminate 52,000 jobs over the next year, twice the target announced last month, as loan losses surge and the economy shrinks, the company said Nov. 17. The company's shares today reached the lowest level since 1994.

``We thought last year the bottom had been reached, but it hasn't,'' Citigroup Chairman Win Bischoff said in a conference in Dubai. ``Most responsible companies are getting into a planning cycle with more pessimistic budgets than they have been in the past.''

Carmakers are also firing workers. Ford Motor Co. plans temporary shutdowns at nine North American plants this quarter, idling as many as 23,000 workers, as it slashes production after an 18 percent drop in U.S. sales this year, the company said Nov. 12.

Forty-three states and territories reported an increase in new claims, while 10 reported a decrease. The unemployment rate among people eligible for benefits, which tends to track the jobless rate, rose to 3 percent, the highest since June 2003. These data are reported with a one-week lag.

Initial jobless claims averaged 416,000 a week during the last recession, from March 2001 to November 2001.

Philadelphia Index

The Federal Reserve Bank of Philadelphia's general economic index was minus 39.3 this month, weaker than forecast and the lowest reading since October 1990, from minus 37.5 in October, the bank said today. Negative readings signal contraction. The index averaged 5.1 last year.

The deepening credit crisis and economic slump are forcing companies to trim payrolls, investment and production. Slowing global demand is weighing on manufacturing, which accounts for about 12 percent of the U.S. economy.

``Manufacturers are getting hit by several different forces,'' Dean Maki, co-chief global economist at Barclays Capital Markets in New York, said in an interview with Bloomberg Television. ``Exports are being hit pretty hard because the slowdown is heading abroad as well.''

Component Measures

Six of the 10 indicators in today's Conference Board report dragged the index down, led by plunging stock prices, which subtracted 0.89 percentage point. The Standard & Poor's 500 index dropped 20 percent last month from September.

The index was forecast to decline 0.6 percent, according to the median of 56 forecasts. The reading for September was revised to a gain of 0.1 percent, less than the 0.3 percent increase previously reported.

The index is also made up of jobless claims, building permits, consumer expectations, the yield curve, factory hours and supplier delivery times, new orders for consumer goods, bookings for capital goods and money supply adjusted for inflation.

Housing subtracted 0.35 percentage point from the index in October. The pace of housing starts and building permits, a sign of future construction, both plunged to record lows last month, indicating the industry's downturn may extend into a fourth year.

Lowe's Cos., the second-largest home-improvement retailer, reduced its full-year profit forecast following a slowdown in remodeling projects.

Federal Reserve policy makers ``generally expected the economy to contract moderately in the second half of 2008 and the first half of 2009 and agreed that the downside risks to growth had increased,'' according to minutes of their Oct. 28-29 meeting released yesterday.

The economy contracted 0.3 percent in the third quarter and economists surveyed by Bloomberg forecast negative growth of about 1 percent for the next six months.

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