Job losses in the moribund U.S. economy mounted last week and manufacturing remained in dire straits this month, while other data on Thursday showed the threat of deflation persisted in December.
The number of U.S. workers filing new claims for unemployment benefits rose to a seasonally adjusted 524,000 last week, underscoring a bleak outlook after the worst year of job cuts since 1945.
Factory activity in New York state and the Mid-Atlantic region shrank the January but the pace of contraction eased a bit, according to a separate reports that still highlighted a weak employment outlook in the manufacturing sector.
U.S. producer prices fell for a fifth straight month in December, government data showed on Thursday, indicating worries over a deflationary spiral of falling prices, wages and economic activity remained a serious concern.
"We are heading into deflationary environment in 2009," said Kurt Karl, chief U.S. economist at Swiss RE in New York, and "the 500,000 (jobless claims) figure is still terrible."
U.S. government bonds, which usually benefit from signs of economic weakness, remained higher on the day and were aided by by fresh worries over the financial sector.
Stocks briefly pared losses after the the Philadelphia Federal Reserve Bank's report on mid-Atlantic factories, which was not as weak as expected.
JOB WOES
The initial claims were worse than analysts' forecasts for an increase to 500,000 and above the prior week's upwardly revised 470,000. The data also suggest little change in the worst spate of job destruction in more than half a century.
In all of 2008, 2.6 million people lost their jobs, the largest slump in employment since a 2.75 million drop in 1945 when the country demobilized at the end of World War Two.
Looking beyond seasonal adjustments, there was even worse news. Continued claims — which shows the number of people staying on benefits after drawing an initial week of aid — fell to seasonally adjusted 4.5 million from 4.6 million.
However, the raw figure of actual continued claims rose to a record 5.8 million from 5.3 million the prior week, which was the previous record high.
The New York Federal Reserve's Empire State factory index rose to a still anemic minus 22.20 this month, strengthening a bit from a downwardly revised minus 27.88 in December.
Underscoring the grim jobs picture, the Empire State's employment index for the factory sector fell to minus 26.14 in January from minus 23.40 in December.
The Philadelphia Federal Reserve Bank reported its business activity index at minus 24.3 after a reading of minus 36.1 for December.
Any reading below zero indicates contraction in the region's manufacturing, but that result was better than economists' expectations for a result of minus 35.0, according to the median of their forecasts in a Reuters poll.
The Philly Fed's jobs gauge tumbled to minus 39.0 from December's negative 28.6.
On the inflation front, the Labor Department said producer prices fell 1.9 percent month-on-month in December after dropping 2.2 percent the previous month. Producer prices were down 0.9 percent from a year earlier.
A record drop in gasoline prices helped the fall, which may be good news to businesses and consumers. However, analysts say an environment of persistent and broadly falling prices can be destructive to wages, consumer spending and business activity.
For now, though, the lack of price pressures may allow the Federal Reserve to deploy all its forces to fight the current recession, which started with the bursting of this decade's housing bubble and has cut a broad swathe of destruction through the economy.
