WASHINGTON – Lines for U.S. jobless benefits lengthened last week and confidence tumbled in August, signs that even before devastating attacks in New York and Washington, the U.S. economy seemed headed for trouble.
The number of Americans seeking first-time jobless benefits last week rose well above expectations to 431,000 claims while the number of Americans staying on benefits hit a nine-year high, a Labor Department report on Thursday showed.
More bad news about the economy came in the form of a survey released on Thursday but conducted before the attacks, showing U.S. consumer confidence sagging in August.
Confidence is a key indicator because consumer spending, which fuels two-thirds of economic activity, has been the most important factor keeping the U.S. economy out of recession.
``Clearly in view of the terrorist attack, most likely these numbers will get worse before they get better,'' Sung Won Sohn, chief economist with Wells Fargo & Co., said of the jobless claims. ''This clearly indicates that the labor market is deteriorating and that the U.S. economy is probably inching closer toward a recession.''
In a bid to calm rattled markets, the U.S. Federal Reserve and the European Central Bank on Thursday agreed to a $50 billion swap arrangement aimed at aiding the cash needs of European banks affected by the U.S. attacks.
In addition, there is growing speculation among Wall Street players that the Fed -- which after the attacks vowed to provide needed liquidity to keep markets functioning -- would likely cut key interest rates again before its scheduled October 2 meeting.
On Thursday, Treasury Secretary Paul O'Neill joined other regulators in offering reassurance that he had faith in the U.S. economy, noting the orderly trading Thursday in the U.S. Treasury bond market.
``We have every reason to maintain confidence in the U.S. economy,'' O'Neill said in his first briefing after his return from Japan on Wednesday. ``No evil, no matter how unspeakable, can destroy America's productive spirit.''
His comments came after Federal Reserve Vice Chairman Roger Ferguson's reassurances about the financial markets.
``We've suffered quite a blow but the financial systems have proven themselves to be quite resilient,'' Ferguson told reporters before briefing lawmakers about the condition of the financial markets in the wake of the attacks.
Ferguson reiterated the U.S. central bank's vow to provide any needed liquidity.
So far this year, the Fed has cut key interest rates seven times, bringing them down by a total of 3 percentage points.
U.S. stock markets remained closed on Thursday for a third straight day after the attacks which brought down New York's World Trade center. It is the longest shutdown in 80 years.
Stocks were set to resume trading on Monday at 9:30 a.m. EDT, after test runs are conducted on Saturday.
U.S. Treasury bonds, trading for the first time since Tuesday's attacks, surged while the dollar was slightly weaker and European stocks edged up awaiting the reopening of U.S. stock markets.
EMPLOYMENT PICTURE MAY GET WORSE AFTER ATTACKS
While this latest jobless claims report did not reflect any impact from the Tuesday attacks, analysts say it still likely heralds a weak September employment report and signals the U.S. may be closer to recession. And its economic woes will likely be amplified by the attacks.
The U.S. economy inched ahead by just 0.2 percent in the second quarter. A recession is loosely defined as two quarters of economic contraction.
``I think its clear that we're not headed in the right direction and this is indicating that September doesn't look like a great month as far as the labor market,'' said Joel Naroff, an economist with Naroff Economics in Holland, Pa.
The claims data for the week ended Sept. 8, were significantly higher than the 404,000 claims analysts in a Reuters poll, on average, had forecast.
The four-week moving average of jobless claims, considered a more reliable barometer of employment conditions because it irons out weekly fluctuations, rose to 411,000 last week from 399,500. That was the highest level since July 14, when the average climbed to 415,250.
Unemployed workers are staying jobless, according to the government's report.
The number of workers remaining on state unemployment benefits for the week ended Sept. 1, the latest week data were available, hit its highest level since August 1992, when the nation was struggling to recover from its last recession.
``It's certainly a time of rising layoffs and falling employment,'' said Kurt Karl, chief economist at Swiss Re in New York. ``Unfortunately when the momentum on this thing gets going it just doesn't turn on a dime,'' he added, predicting that the September payrolls report would be dismal.
In August, the U.S. unemployment rate surged to a four-year high of 4.9 percent from 4.5 percent in July as companies axed 113,000 workers from their payrolls.
CONSUMER CONFIDENCE TUMBLES
In another telling sign of a weak economic performance to come, U.S. consumer sentiment plunged sharply in September, dragged down by crumbling expectations for the future in the University of Michigan's latest survey, conducted before Tuesday's attacks.
The University's preliminary consumer sentiment index, which is released directly to subscribers only, plunged to 83.6 -- the lowest level this year -- from 91.5 in August, sources said. Economists had forecast the index to read 90.8.
The current conditions index in that survey, a gauge of how comfortable American consumers feel about present economic conditions, tumbled to 93.5 in September from 101.2 in August.
The September preliminary expectations gauge of the index, which measures consumers' attitudes about the year ahead, fell sharply to 77.2 in September from 85.2 in August.