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By Don Miller
New government data released yesterday (Thursday) shows deepening unemployment pushing the U.S. economy on a steep downward track even as companies squeeze more output from their remaining workers.
The number of new claims for unemployment benefits rose 35,000 to a seasonally adjusted 626,000 in the week ended Jan. 31, the Labor Department reported. That's the highest level since 1982, a sign that the U.S. labor market is deteriorating at a rapid rate.
Meanwhile, productivity, a measure of employee output per hour, rose at a 3.2% annual rate in the fourth quarter, more than twice as much as forecast, a separate report showed. Labor costs climbed at a 1.8% rate, less than anticipated.
The four-week average of new claims, which smoothes out distortions caused by bad weather, strikes or the timing of holidays, rose by 39,000 to 582,250.
Continuing jobless claims – the number of people staying on the benefit rolls – rose by 20,000 in the week ended Jan. 24 to a seasonally adjusted 4.79 million, the most since the government's records began in 1967.
Initial claims show levels of current job destruction, while continuing claims reflect the difficulty that displaced workers are having finding new employment. The latest data indicates businesses are shedding workers at a rapid pace and that finding new work is proving to be a tall task for those who've lost jobs.
The claims data shows the economy is "convulsing and contracting," Boris Schlossberg, director of currency research at GFT Forex in New York, told Reuters. "The economy clearly is in desperate need of a stimulus."
Meanwhile, in an effort to cope with the rapidly worsening economic environment, companies are slashing their employees' work hours.
A Labor Department report showed non-farm hours worked declined at an 8.4% annual rate in the fourth quarter, the biggest slump since the first quarter of 1975. The number of hours worked fell 14.1% in the manufacturing sector, as a result of a slump in factory orders.
"The mad dash to cut workers is paying off as firms are doing more with their remaining employees and are keeping expenses down," Joel Naroff, president of Naroff Economic Advisers, wrote in a note to clients.
Cummins Inc. (CMI), the maker of more than one-third of North America's heavy-duty truck engines, is offering voluntary retirement packages to 350 hourly employees in southern Indiana.
"The demand for our engines and related products continues to fall, and despite the significant steps already taken to align our costs with that demand, permanent job reductions have become necessary," Jim Kelly, president of the engine unit, said in a Feb. 2 statement.
"Companies are still trying to cut costs to bring them into line with their weak sales," Gary Thayer, senior economist at Wachovia Securities in St. Louis, told Reuters. "The fourth-quarter productivity numbers show that they are moving in that direction. It looks like there will be some more cost-cutting here in the first quarter."
Most evidence points to even higher joblessness. Major companies have announced more than 100,000 layoffs this week alone. Those layoffs will actually take several months to reflect in government statistics.
"There are more employment adjustments to come unfortunately," Michael Gregory, a senior economist at BMO Capital Markets in Toronto, said before the report. "It's not really a positive story."
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