The new evidence of the weak state of the jobs market raised the likelihood that the key Federal Funds rate will be cut from its current level of 6 per cent after the Federal Reserve's 5-6 July policy meeting.
The expectation of a reduction was already widespread after the Fed chairman, Alan Greenspan, earlier this week said the US faced an "increased risk of a modest near-term recession". He indicated that the Fed, whose members differ in their hawkishness, would analyse economic statistics even more intensely than usual for clues about how serious the current slowdown might be.
The speed at which the economy has slowed has taken Americans by surprise. There have been three successive declines in industrial output, two big monthly drops in employment, a sharp dive in factory orders and weak housing market figures.
Susan Hering, an economist at Salomon Brothers in New York, said: "The case for easing is building steadily."
She noted that the number of jobless claims in the past four weeks was the highest since late 1992.
Last week jobless claims jumped to 395,000, a 20,000 increase rather than the small decline analysts had expected. Lay-offs were concentrated in textiles, transportation equipment and services.Reuse content