Jobless rolls at 26-year high

WASHINGTON (Reuters) - Unemployment benefit rolls swelled to a 26-year high in the last week of December, data showed on Thursday, while retailers, including market leader Wal-Mart, reported poor sales as the year-long economic slump deepened.

The Labor Department said the number of people still on jobless rolls after drawing an initial week of aid jumped 101,000 to 4.61 million in the week ended December 27, the latest for which data is available.
That was the highest since November 1982 and beat analysts' expectations of 4.50 million, underscoring the difficulty people face getting another job when they are laid off.
"You are still seeing a lot of people of collecting unemployment claims, so the underlying conditions are very poor. The bad news in the continuing claims is relentless," said Pierre Ellis, senior global economist at Decision Economics in New York.
While the overall size of the benefit rolls has been marching steadily higher, the number of U.S. workers submitting new claims for state unemployment aid dropped unexpectedly last week, a second consecutive decline.
Initial claims fell 24,000 to 467,000 in the week ended January 3, the department said, well below the 540,000 new claims economists had expected. It was the lowest reading since the week ended October 11, when it was at 463,000.
Normally this would be seen as a suggestion that the labor market's deterioration was abating, but analysts said the decrease was likely due to people holding back applications because of the holidays.
"It covers a holiday period, so people were delaying filing their claims. There is going to be a surge next week," said David Watt, a senior currency strategist at RBC Capital Markets, in Toronto. "I don't think this is indicative of the trend."

RECESSION DEEPENS
The surge in workers drawing benefits reflects a deepening of the recession that started in December 2007, a downturn many economists think could turn into the longest since the Great Depression of the 1930s.
The data came a day before the government issues its report on December nonfarm payrolls. That report is expected to show the economy lost 550,000 jobs last month, with the unemployment rate jumping to 7 percent from November's 6.7 percent.

The collapse of the U.S. housing market and the resulting financial crisis have caused the loss of a huge number of jobs across a wide spectrum of sectors.
Underscoring the steepening slump, the Philadelphia Federal Reserve Bank said on Thursday the pullback in factory activity in the country's Mid-Atlantic region was more severe in December than originally reported.
Faced with an uncertain economic picture and mounting job insecurity, consumers have cut back on spending.

On Thursday, Wal-Mart Stores Inc (NYSE:WMT - News), which has been the retailer of choice for consumers watching their wallets, led U.S. retailers in posting disappointing December same-store sales. It also cut its quarterly earnings forecast.

News from the International Council of Shopping Centers (ICSC) was also grim. U.S. chain stores sales fell 1.7 percent in December compared to the same period a year-ago.
"This was an extraordinarily difficult holiday season. Retailers were forced to slash prices to entice consumers to spend," said Michael Niemira, ICSC chief economist.
"But even that strategy was not enough as the elevated worry about job insecurity and increased job layoff announcements continued to restrain consumers' willingness and ability to spend."

U.S. stocks initially fell on the weak retail sales reports and the jobless numbers, but ended mixed, with the Dow Jones industrial average (DJI:^DJI - News) down 27.24 points at 8,742.46.

The Standard & Poor's 500 Index (^SPX - News) rose 3.08 points to 909.73 and the Nasdaq Composite Index (Nasdaq:^IXIC - News) climbed 17.95 points, to 1,617.01.
"The message is the weak economy is hurting the job market and that will affect consumer spending going forward. There is a serious snowballing process under way," said Decision Economics' Ellis.
In yet more evidence of how households continue holding back, a Federal Reserve report showed consumer borrowing plunged by a record $7.94 billion in November after dropping $2.78 billion the previous month.
The tough economic environment has left consumers either reluctant or unable to access credit.
President-elect Barack Obama, seeking swift passage of his proposed massive stimulus plan, warned on Thursday that the economy could remain mired in recession for years without bold action.
(Additional reporting by Emily Kaiser in Washington, Brad Dorfman in Chicago, Richard Leong and Steven C. Johnson in New York; Editing by Dan Grebler)

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Consumer credit drops $8B in November

Consumer borrowing decreased sharply in November as the weak economy continued to weigh on household budgets.
The Federal Reserve said Thursday that consumer borrowing fell by $8 billion in November to $2.571 trillion from an upwardly revised $2.579 trillion in October.
The annual rate of consumer borrowing fell by 3.7% in the month. In October, the annual rate fell by only 1.3%.

Credit card borrowing, or revolving debt, declined at an annual rate of 3.4%. Non-revolving borrowing, including student and auto loans, fell $5.2 billion, or 2.1% on an annual basis.
Economists were expecting consumer credit to have remained unchanged in November, according to a consensus of economists' estimates gathered by Briefing.com.
November's decline "signals that the tight credit markets are starting to affect consumers, and that consumers are becoming less willing to use credit to sustain spending," said Sean Maher, associate economist at Moody's Economy.com.

Banks have tightened lending standards for a variety of consumer loans in recent months as worsening economic conditions threaten to increase the likelihood of defaults.
The Fed's October survey of senior loan officers showed that nearly 60% of respondents had tightened lending standards on credit card loans, while nearly 65% indicated that they had tightened lending standards on other consumer loans over the past three months.
Meanwhile, consumers have been saving more and have become wary of purchasing items with borrowed money.
"The savings rate has been expanding over recent months," said Maher. "Consumers are being forced to save more to offset lost wealth and to prepare for possible job losses."

A report from the Labor Department showed Thursday that the number of Americans filing for initial jobless claims fell sharply versus last week.

The decline in weekly jobless claims comes one day before the government's closely watched monthly jobs report.
Friday's report is expected to show that the economy lost 500,000 jobs in December, versus a loss of 533,000 jobs in November. The unemployment rate is forecast to rise to 7% from 6.7%.
The movement away from spending on credit and toward more savings has mixed implications for the overall economy.
"It's a good thing for long-term credit quality of consumers," said Maher. "Over the near term, it's troubling because there's a risk that the recession could be deeper and more protracted if consumers continue to cut back on spending."

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