Hopes that the economy may be poised for a recovery got a splash of reality Thursday: The unemployment rolls are still getting bigger as the recession maintains its grip.
For the 10th week in a row, the number of people receiving jobless benefits grew. It now stands at nearly 5.6 million, the government said — an indication that the labor market is still grim.
New claims for unemployment benefits rose again as well, to a seasonally adjusted 652,000, up from 644,000 the week before. The government also said the economy shrank at a 6.3 percent annual clip in the fourth quarter, slightly faster than its previous estimate.
“There is no sign of recovery here, and claims are usually one of the very first numbers to turn,” Ian Shepherdson, chief U.S. economist at High Frequency Economics, wrote in a client note.
The total number of people claiming benefits jumped to 5.56 million, worse than economists’ projections of 5.48 million, and setting a record for the ninth week in a row.
The stock market shook off the bleak unemployment news and continued its remarkable bounce off lows set earlier this month. The Dow Jones industrials gained almost 175 points to close just under 7,925.
Some economists believe the economy is contracting this quarter, which ends next week, even faster than it did late last year, while others think the shrinking may have slowed. No one disputes that the recession persists.
Many economists expect the gross domestic product will contract again in the April-June period, but by a much smaller amount, in the 2 to 3 percent range, and maybe turn back toward growth later in the year.
Nariman Behravesh, chief economist at IHS Global Insight, expects an economic contraction at an annual pace of as high as 8 percent this quarter. “On the other hand,” he added, “the worst of the worst is probably behind us.”
President Barack Obama said Thursday that it will take some time — perhaps through the rest of the year — before vigorous hiring resumes, and that might not happen until businesses see evidence the economy is rebounding.
There have been recent glimmers of hope that Americans’ appetites to spend might be stirring again. Orders for costly manufactured goods and new-home sales both logged unexpected gains in February, and retail sales dipped less than expected.
On the other hand, the huge number of people continuing to collect unemployment insurance shows laid-off workers are staying on the jobless rolls longer as they struggle to land a new job.
As a proportion of the work force, the number of people receiving benefits is at its highest level since May 1983, when the economy was recovering from a deep recession. The total of nearly 5.6 million is almost double what it was a year ago.
On top of that, about 1.5 million Americans are getting benefits under an extended unemployment pay program approved by Congress last year.
The main culprit for the downgrade in the GDP figure was that businesses turned out to have cut their inventories even more than had been thought. Builders also cut back on commercial construction.
Still, economists were expecting the final reading of the fourth quarter GDP figure to be even worse, calling for a 6.5 percent pace of contraction.
In the fourth quarter, Americans cut their spending at an annual clip of 4.3 percent, and businesses cut their spending on equipment and software by a whopping 28 percent. Both declines are the worst in decades.
Of course, the recession is hurting corporate profits. One measure tied to the GDP report showed after-tax profits of U.S. companies dropped more than 10 percent in the fourth quarter.
The steep drop in profits “will mean further belt-tightening by a lot of companies,” meaning less spending on business equipment and software, Behravesh said.
Meanwhile, job losses keep mounting. IBM is making plans for a round of 5,000 job cuts, about 4 percent of its work force, The Associated Press learned. Drugmaker Hospira Inc. said it would cut 1,450 jobs, or about 10 percent of its work force.
The government is counting on injections of hundreds of billions of dollars into the financial system, plus the enormous economic stimulus plan, to help turn the economy around.
For all of last year, the economy grew a meager 1.1 percent, the slowest growth since 2001.