First-Time Jobless Claims Hit 26-Year High

A New York bar hosts a Wall Street pink slip party. Bank of America said yesterday that it would cut as many as 35,000 jobs over three years.
A New York bar hosts a Wall Street pink slip party. Bank of America said yesterday that it would cut as many as 35,000 jobs over three years. (By Spencer Platt -- Getty Images)
  Enlarge Photo    
By Annys Shin and Howard Schneider
Washington Post Staff Writers
Friday, December 12, 2008

The number of people filing for unemployment benefits for the first time jumped to a 26-year high last week, and demand for U.S. goods and services abroad tumbled in October, according to data released yesterday.

Meanwhile, a new report from the Federal Reserve showed that falling home values and tightening credit standards drove down the net worth of American households by nearly 5 percent from July to September. That was before the stock market nosedived in October.

Initial unemployment claims for the week that ended on Dec. 6 increased 58,000 to a seasonally adjusted 573,000, a level not seen since November 1982, the Labor Department reported. A four-week average of jobless claims -- considered a more reliable measure of the job market -- also hit a 26-year high, increasing to 540,500 from 526,250 from the previous week.

The spike in first-time unemployment claims was "truly horrific," said Bernard Baumohl, chief global economist for the Economic Outlook Group, an advisory firm in Princeton, N.J.

Bank of America yesterday joined the growing list of employers saying they would be firing workers. The bank, based in Charlotte, said in a statement that it planned to shed as many as 35,000 jobs over the next three years as it absorbs Merrill Lynch and confronts the weak economy. The cuts will come from both companies and affect all lines of business.

A Commerce Department report released yesterday showed that total U.S. exports in October fell more than 2 percent from September, from $155.1 billion to $151.7 billion, the third monthly decline.

Trade is a key component of the gross domestic product, and the export figures led some analysts to reduce their forecasts for U.S. economic output for the final three months of the year. Previous estimates had ranged from declines of 3 to 5 percent. In light of the dismal export figures, some analysts said a 4 to 6 percent decline was possible.

The collapse in global demand for goods and services undermines what in recent months has been an important prop for an otherwise shrinking economy.

Buoyed by the declining value of the dollar, exports had ballooned over the past two years, from $115 billion at the beginning of 2006 to $168 billion as of July.

But the boom seems to be over. The drop in October exports hit not only manufacturers but also the country's service sector companies and is spread across a broad variety of businesses. Recent efforts to stimulate the economies of some of the United States's biggest trading partners in Europe and Asia are not likely to boost U.S. exports any time soon, said Brian Bethune, an economist with IHS Global Insight.

"The recession in Europe and Japan started in early 2008, and the policy response is well behind the curve," Bethune said. "That suggests there is not going to be any imminent improvement, so more is dependent on getting the U.S. domestic economy revived."

Household debt decreased for the first time ever recorded, the Fed also reported yesterday. Household debt fell by a seasonally adjusted annual rate of 0.8 percent during the three months that ended on Sept. 30.

Analysts attributed the decline to consumers cutting back on spending as well as the tightening credit standards.

"The desire to borrow has diminished as consumer spending has contracted," said Dean Maki, an economist with Barclays Capital in New York.

Much of the decrease in household debt was because of a 2.4 percent drop in home mortgage debt. Keith Leggett, senior economist for the American Bankers Association in Washington, said mortgage debt fell as more people lost their homes to foreclosures, paid off their mortgages, or had their mortgages modified. Slowing home sales also reduced the number of new mortgages.

Falling home values and stock market losses, however, pushed down the net worth of U.S. households in the third quarter by $2.8 trillion, to $56.5 trillion.

"These are really tough times for consumers," Baumohl said. "I think they realize they are going to have to get their balance sheets in order."

© 2008 The Washington Post Company