US activity slumps as numbers of jobless increases

Business activity in the United States slumped in the wake of the 11 September terrorist attacks while the jobless total rose again, highlighting weakness in the American economy.

The number of manufacturing companies reporting that business conditions had worsened outnumbered the optimists by 27 per cent compared with 7 per cent in September.

The fall in the index, which is produced by the Federal Reserve Bank of Philadelphia, was the 11th straight month of contraction. Almost six out of 10 companies told the Fed they did not expect to see any recovery until at least spring next year.

Michael Trebing, an economist at the bank, said about half the companies polled attributed a sharp drop in orders and activity to the attacks on New York and Washington. "These firms expect these reductions to be short in nature," he said, adding that there had been a "modest lengthening of the time expected for recovery".

In the meantime, the government said the number of initial jobless claims increased by 6,000 to a seasonally adjusted 490,000 for the week ended 13 October, well above Wall Street's expectations. "The level is just slowly creeping upward to a pretty severe recession level," said Kurt Karl, chief economist at Swiss Re in New York. "It's a lot of people out of work and growing."

In a sign workers are remaining jobless, the number continuing to claim state benefits for the week ended 6 October – the most recent week for which data were available – rose by 152,000 to 3.65 million, the highest in more than 18 years.

More than 650,000 job cuts have been announced in the past few months as companies around the world wrestle with slowing growth and plunging demand. Economists fear that the rising toll of job cuts will soon hit consumer confidence, which so far has held up in the face of mounting bad news.

Meanwhile, Al Broaddus, the president of the Federal Reserve Bank of Richmond, said central bankers were ready to cut interest rates again to help growth recover.

"I can assure you that we at the [US] Fed will continue to do everything we can to foster that recovery," he said, adding that he was confident the economy would "recover fully" from last month's terrorist attacks.