Several reports released Wednesday provided more evidence that consumers are cutting back on spending and companies are eliminating jobs in the face of a deepening recession.
Consumers cut spending for a fifth straight month in November and their incomes shrank, according to a government report that pointed to deepening recessionary pressures.
The Commerce Department said spending fell by 0.6 percent after falling even more steeply by 1 percent in October. Incomes contracted by 0.2 percent after a slight 0.1 percent gain in October, reflecting the strain that rising unemployment is putting on Americans' ability to spend.
Meanwhile, the government says new claims for unemployment benefits increased more than expected last week as layoffs spread throughout the economy.
The Labor Department says initial requests for jobless benefits rose to a seasonally adjusted 586,000 in the week ended Dec. 20, from an upwardly revised figure of 556,000 the previous week. That's more than the 560,000 economists had expected.
The number of initial claims is the highest since November 1982, though the work force has grown by about half since then.
To add to the grim outlook, orders to U.S. factories for big-ticket manufactured goods fell again in November, reflecting further setbacks in the battered auto industry and a big drop in demand for commercial aircraft.
The Commerce Department reported that orders for durable goods fell 1 percent last month, alhough the decline was smaller than the 3 percent decrease economists had been expecting. But the decline came on top of an 8.4 percent plunge in orders in October, which had been the biggest in eight years.
The weakness in November orders reflected a big 37.7 percent fall in demand for commercial aircraft and a smaller 0.2 percent drop in orders for new vehicles and auto parts.
Americans' incomes fell by a worse-than-expected 0.2 percent. It was the first decline since July and reflected in part the fact that more than a half-million jobs were cut in November as the recession deepened.
The 0.6 percent drop in consumer spending followed an even larger 1 percent fall in October. But the steep plunge in gasoline prices, which is actually good news for consumers, made the declines look worse. Excluding price changes, consumer spending would have dropped by 0.5 percent in October and risen by 0.6 percent in November. The November increase excluding inflation was the best showing in more than three years.
Still, economists think the overall trend for consumer spending is down, given the problems facing the economy including the longest recession in a quarter-century, a severe financial crisis that has cut off access to credit for millions of borrowers and a massive wave of job layoffs.
All those troubles have left retailers fearing that this could be their worst holiday shopping season in decades.
Economists don't think the hard times will end any time soon. The government reported Tuesday that the overall economy, as measured by gross domestic product, was declining at an annual rate of 0.5 percent in the July-September quarter and analysts believe the contraction has accelerated in the current quarter. Some are forecasting that GDP will plunge this quarter at an annual rate of 6 percent, which would be the worst showing in 26 years.
Many analysts say GDP also will fall in the first and second quarters next year before beginning a modest rebound in the summer. If that forecast turns out to be accurate, it would make the current recession, which began in December 2007, the longest in the post-World War II period.
The economic weakness is helping to keep inflation under control. A price gauge tied to consumer spending fell by a record 1.1 percent in November, the second monthly decline. Excluding the cost of energy and food, the price index was unchanged last month.
Over the past 12 months, consumer prices are up 1.4 percent, the smallest 12-month change since August 2002.
Economists closely watch consumer spending because it accounts for two-thirds of total economic activity. For the July-September quarter, the government reported Tuesday that spending had fallen by 3.8 percent, the biggest quarterly setback in 28 years.
Michael P. Niemira, chief economist for the International Council of Shopping Centers, is forecasting that sales at established stores in November and December will be down 1.5 to 2 percent — making this the weakest holiday season since at least 1969.
According to a Labor Department analyst, auto-related layoffs were a major factor in the increase in the jobless number.
The four-week average of initial claims, which smooths out fluctuations, increased to 558,000. That's the highest since December 1982, when the economy was emerging from a steep recession.
There was some improvement in the number of Americans continuing to seek unemployment benefits, which dropped slightly to 4.37 million from 4.39 million the previous week. Wall Street economists had expected the number to increase to 4.4 million.
Economists consider jobless claims a timely, if volatile, indicator of the health of the labor markets and broader economy. A year ago, initial claims stood at 353,000.
The Labor Department said earlier this month that employers cut a net total of 533,000 jobs in November, sending the unemployment rate to 6.7 percent, the highest in 15 years.