Data on jobs, consumer spending show weakness

Meanwhile, the Labor Department reported that the number of laid-off workers filing applications for unemployment benefits increased by 69,000 to 375,000 last week. That was the highest level since the week of Oct. 8, 2005, when the economy was dealing with the disruptions caused by Hurricane Katrina and other Gulf Coast hurricanes.

The increase in jobless claims was more than triple what economists had been expecting, although part of the increase was blamed on technical difficulties in adjusting the figures around the Martin Luther King Jr. holiday.

Analysts said the greater concern was the slowdown in consumer spending, which they predicted would continue in the current quarter.

The overall economy, as measured by the gross domestic product, slowed to an anemic growth rate of 0.6 percent in the final three months of 2007, half of what had been expected, and many analysts believe it could dip into negative territory in the current quarter.

By one definition, a recession occurs when GDP is negative for two consecutive quarters.

David Wyss, chief economist at Standard & Poor's, said he was forecasting that GDP would decline at an annual rate of 1 percent in the current quarter, in large part because of the expected further slowing in consumer spending, which accounts for two-thirds of US economic activity.

"Happy holidays is not a phrase that retailers are using to describe this year's shopping season," said Joel Naroff, the chief economist at Naroff Economic Advisors.

Despite widespread discounting, retailers slogged through their weakest Christmas sales season in five years as consumer confidence was shaken by the deep slump in housing, a severe credit squeeze, and last year's big increases in the cost of gasoline and other fuels.

The US unemployment rate rose in December to 5 percent, from 4.7 percent in November. That was the biggest one-month increase since the period immediately following the September 2001 terrorist attacks.

The January jobless number will be released today, with analysts expecting it to be unchanged.

The Federal Reserve on Wednesday cut a key interest rate by a half-point, the second large move in less than a week as the central bank signaled it was prepared to do whatever is needed to bolster the weakening economy.

President Bush and House leaders reached quick agreement on an economic stimulus plan last week, but the package has slowed in the Senate.

Treasury Secretary Henry Paulson, who is leading the administration's negotiations with Congress, yesterday told reporters that he was concerned the extra Senate provisions would create "a real risk that the process will bog down and slow our efforts to get money into the economy."