By Lucia Mutikani
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 the data is available.
That was the highest since November 1982 and beat analysts' expectations for a 4.50 million total.
"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 their 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 a 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 led the economy to shed a huge number of jobs across a wide spectrum of sectors.
Faced with an uncertain economic picture and mounting job insecurity, consumers have cut back on spending.
On Thursday, Wal-Mart Stores Inc, 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.
Wal-Mart said groceries and health-related products recorded mid-single-digit percentage sales gains in December, while demand for clothing and jewelry was soft.
The weak retail sales reports and the jobless numbers sent Wall Street stocks tumbling and fueled a safe-haven bid in U.S. Treasury debt, which tends to benefit from news of economic distress.
"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 underway," said Decision Economics' Ellis.
President-elect Barack Obama, in a speech on his economic recovery plan, said on Thursday he would offer working families a $1,000 tax cut and improve energy efficiency in millions of American homes in order to create jobs and stimulate the economy.
He also said the plan would extend jobless aid and healthcare coverage for the unemployed and include proposals to double production of alternative energy in the next three years.
(Additional reporting by Brad Dorfman in Chicago, Richard Leong and Steven C. Johnson in New York, and Paul Eckert in Fairfax, Va; Editing by Dan Grebler)
