New jobless claims drop from 16-year high

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New jobless claims fell more than expected last week from a 16-year high, the government said Wednesday, though they remain at elevated levels due to the slowing economy.

The report was one of four released by the government that added up to a bleak overall picture of the economy.

The Labor Department reported that initial requests for unemployment benefits fell to a seasonally adjusted 529,000 from the previous week's upwardly revised figure of 543,000. That is lower than analysts' expectations of 537,000.

Despite the improved number, initial claims remain at recessionary levels. The four-week average, which smooths out fluctuations, rose to 518,000, its highest level since January 1983, when the economy was emerging from a steep recession.

One minor bright spot was seen in the number of people continuing to claim unemployment insurance, which also dropped unexpectedly to 3.96 million, down from the previous week's 4.02 million. which was the highest level in 25 years. The labor market has grown by about half since 1983.

Economists consider jobless claims a timely, if volatile, sign of how fast companies are laying off workers. Employees who quit or are fired for cause are not eligible for benefits.

"We see nothing to suggest claims are near their peak," Ian Shepherdson, chief U.S. economist at High Frequency Economics, wrote in a research note. "The trend is still strongly upwards."

The economy has been hit hard in recent months by the housing slump and the broader financial crisis, which have led consumers and businesses to cut back on spending.

The Commerce Department reported Wednesday that consumer spending plunged by 1 percent in October, even worse than the 0.9 percent decline that had been expected. Consumer spending accounts for two-thirds of total economic activity.

Orders to U.S. factories for big-ticket manufactured goods also plunged last month by the largest amount in two years. Orders for durable goods dropped by 6.2 percent, more than double the decline economists expected. The Commerce Department report showed widespread declines throughout manufacturing led by decreases in autos and airplanes.

Demand for autos fell by 4.5 percent last month, reflecting the hard times facing U.S. automakers, who are appealing to Washington for a sizable bailout package. Orders for commercial aircraft fell by 4.7 percent.

And new home sales fell by 5.3 percent last month to the lowest level in almost 18 years, the Commerce Department said. Sales dropped to a seasonally adjusted annual pace of 433,000, the lowest since January 1991. The median price of a new home sold in October fell to $218,000, down 7 percent from a year ago. It was the lowest median sales price since September 2004.

Wall Street appeared ready to give back some of its recent gains as investors reacted to the downbeat economic readings. The Dow Jones industrial average was down early, but rose about 30 points in early afternoon trading. The stock market is coming off of three sessions of gains, so some giveback, especially with disappointing data, is to be expected.

The government said Tuesday the economy shrank at an annual rate of 0.5 percent in the third quarter, more than its previous estimate of a 0.3 percent decline.

The nation's unemployment rate, meanwhile, is 6.5 percent, a 14-year high, and is expected to climb. Employers have cut payrolls every month so far this year. The total number of unemployed in October was just over 10 million, the most in 25 years.

Higher unemployment can lead to a downward spiral, as laid-off workers are more likely to fall behind on mortgage payments and other debt. Those who remain employed also may keep their wallets shut out of concern for their jobs.

Several companies announced layoffs in the past week, including Bank of New York Mellon Corp., Western Union Co. and the Dillards Inc. department store chain.

In an effort to jump-start consumer spending, the government on Tuesday announced an $800 billion effort to encourage more consumer lending in the form of auto loans, credit cards and mortgages.

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