By Burton Frierson
NEW YORK (Reuters) - U.S. factory orders tumbled in August and the number of workers seeking jobless benefits rose in the latest week to a seven-year high as trauma in financial markets threatened to cement a deep downturn for the world's largest economy.
Thursday's reports were just the latest in a series of grim economic news, and follow Wednesday's data from the Institute for Supply Management showing factory-sector activity shrank in September to its lowest level since the 2001 recession.
"You add it all up, with the jobless claims and yesterday's ISM , and it's pretty damn clear we're in a recession," said Robert Macintosh, chief economist at Eaton Vance Corp in Boston.
The data heightened anxiety in financial markets, sending stocks lower as investors came to grips with the idea that the economy might not be able to stay on its feet in the wake of multiple blows this year from high energy prices and severe constraints on credit.
The number of people filing initial claims for jobless benefits was 497,000 in the week ended September 27, the highest since 517,000 in the week ended September 29, 2001 and above Wall Street economists' forecasts of 475,000, the Labor Department said in a weekly report.
It estimated that the effects of Hurricane Gustav in Louisiana and Hurricane Ike in Texas added approximately 45,000 claims to the total.
Even without that, claims would have been well above the level of 400,000 they have exceeded during recent recessions.
Weekly claims are one of the most up-to-date indicators, and the bad news is that even they probably do not fully reflect the effects of the heightened credit turmoil of recent weeks.
"The economy is turning down pretty fast at this point unfortunately," said Nigel Gault, director of U.S. economic research at Global Insight.
The economy was clearly struggling even before the latest downward spiral in financial markets, though, as evidenced by the August factory orders data.
New orders at U.S. factories tumbled by an unexpectedly steep 4 percent in August, the sharpest contraction since October 2006, a Commerce Department report showed.
Analysts polled by Reuters were expecting factory orders to slip 2.5 percent. The news drove up government bonds, which benefit during times of economic weakness.
Orders were brought down by a big drop in motor vehicle orders, the data showed.
Still, even when volatile transportation orders were stripped out, factory orders shrank 3.3 percent, the steepest slide in orders excluding transportation since September 2001.
(Additional Reporting by Mark Felsenthal and Doug Palmer in Washington, Herb Lash in New York, Editing by Chizu Nomiyama)
