By Lucia Mutikani
WASHINGTON (Reuters) - The number of U.S. workers filing new claims for jobless benefits surged to a 26-year high last week as employers tightened their belts to help weather what many fear will be a deep, long recession.
Separate reports showed the U.S. trade deficit swelled unexpectedly in October as weak economies around the world imported less from the United States.
Analysts said the export pillar that had helped to support the fragile economy earlier in the year was now crumbling and many said the economy appeared headed for an even deeper contraction in the fourth quarter than they had thought.
"The last bastion of the U.S. economy has collapsed. The U.S. economy will contract by 4.5 percent in the current quarter. The ugly recession accompanies us into the next year," said Harm Bandholz, an economist at UniCredit Markets & Investment Banking in New York.
Initial claims for state unemployment insurance benefits jumped by 58,000 to 573,000, the U.S. Labor Department said on Thursday.
It was the biggest increase in claims in more than three years and the highest level since November 1982 when the U.S. economy suffered a recession after the Federal Reserve raised interest rates to combat the high inflation of the 1970s.
U.S. stocks opened lower on the grim economic numbers, but later moved into positive territory, while the U.S. dollar fell against key currencies. Economists said the data underpinned the case for the Fed to lower interest rates sharply at a meeting next week.
The U.S. economy has been stuck in a recession for a year, and a Reuters survey of 105 economists pointed to a contraction spanning through the second quarter of 2009, with the fourth quarter expected to show the sharpest slide.
WORST LABOR MARKET IN 34 YEARS
Government data earlier this month showed the U.S. economy shed 533,000 jobs in November, the most in 34 years, and the weaker-than-expected jobless claims data indicated the bloodletting was not yet over.
"We are experiencing the absolute worst of the economic downturn right now," said T.J. Marta, fixed-income analyst at RBC Capital Markets in New York. "We're in a period of complete freefall in term of economic growth."
The Labor Department said the number of Americans still on the jobless benefit rolls after claiming an initial week of aid jumped by 338,000 to a 26-year high of 4.43 million in the week ended November 29. It was the biggest increase in 34 years.
Further highlighting how the worst financial crisis since the 1930s has hit the economy, retail sales excluding autos posted their biggest monthly drop in five years in November, a private report showed.
A separate report from the Federal Reserve highlighted the pressure the financial crisis has placed on U.S. consumers. The Fed said household net worth dropped 4.7 percent in the third quarter, the fourth consecutive monthly decline, as real estate and financial assets values fell.
While a pullback by U.S. consumers and businesses would normally narrow the nation's trade deficit, a Commerce Department showed the trade gap widened by 1.1 percent in October as weak economies overseas led to a drop in exports that swamped a decrease in imports.
Even as overall imports fell, imports from China rose 2.8 percent to $34.0 billion, a statistic likely to fuel U.S. criticism that China's yuan currency remains undervalued against the dollar. The U.S. trade deficit with China also set a record at $28.0 billion.
The weakening global economy has cut demand for oil and sent prices plummeting.
The Labor Department said U.S. import prices plunged 6.7 percent in November, the largest decline on records dating to 1988, as petroleum prices dived a record 25.8 percent.
Non-petroleum import prices fell 1.8 percent, the largest monthly drop since 1988 and a further indication of the lack of inflationary pressure in the global economy.
On a slightly better note, U.S. home mortgage foreclosure activity dipped 7.0 percent in November from October, but jumped 28 percent compared with the same month a year ago, and will rise again without a broad permanent fix for troubled loans in this recession, real estate firm RealtyTrac said on Thursday.
State laws that extend the foreclosure process, loan modification programs and a temporary halt through early January on foreclosures of loans bought by Fannie Mae and Freddie Mac pulled November's filings to the lowest level since June.
"I'm afraid we're looking at a bit of a false promise," Rick Sharga, senior price president at RealtyTrac, said in an interview before the figures were released.
"It's basically a stay of execution," he added. "I am fearful that we're going to see a pretty significant spike come January."
One in every 488 U.S. households got a foreclosure filing last month, according to the Irvine, California-based research firm. Filings include notice of default, auction sale or bank repossession.
(Additional reporting by Doug Palmer, Richard Leong and Lynn Adler in New York; Editing by Clive McKeef)
