Problem for banks gets worse

Published: Friday, January 23, 2009 at 6:01 a.m.
Last Modified: Thursday, January 22, 2009 at 11:24 p.m.

WASHINGTON - The number of newly laid-off Americans filing jobless claims and the pace of home construction both posted worse-than-expected results in government data released Thursday, lending urgency to the economic recovery plan President Barack Obama and Congress are scrambling to advance.

The latest batch of economic news cemented fears that the recession, already in its second year, will drag on through much of 2009.

The reports "paint a bleak economic landscape ahead," said Stuart Hoffman, chief economist at PNC Financial Services Group.

And the furious pace of layoffs continued Thursday, with Microsoft Corp. saying it will slash up to 5,000 jobs over the next 18 months. Chemical maker Huntsman Corp. will ax 1,175 jobs this year and will get rid of an additional 490 contractors. Those - as well as other employers - have seen customer demand wane and are cutting costs to survive the fallout.

"The corporate sector is rolling over, and we probably have not yet seen many job losses stemming from the sudden collapse in international trade," warned Ian Shepherdson, chief U.S. economist at High Frequency Economics. "The labor market remains a disaster area."

Wall Street ended a volatile trading day sharply lower following the worse-than-expected economic data, concerns about the nation's banks and disappointing results from Microsoft. The Dow Jones industrial average fell 105.30, or 1.28 percent, to 8,122.80.

On Capitol Hill, House Democrats rolled up their sleeves to nail down pieces of Obama's $825 billion stimulus package - a blend of tax cuts and increased government spending that includes boosting unemployment benefits- with the goal of a floor vote next week.

And the Senate Finance Committee cleared Obama's nomination of Timothy Geithner to be Treasury secretary - despite what the nominee called "careless" and "avoidable" tax mistakes. The full Senate still must clear Geithner, president of the Federal Reserve Bank of New York, before he can take office.

Already Geithner is helping shape the Obama administration's new plan to bust through the debilitating credit and financial crises that are aggravating the recession. The package - likely to be unveiled in a few weeks- may include a program to mop up bad mortgages and other toxic assets so banks would be in a better position to lend money more freely.

On the layoffs front, first-time applications for unemployment benefits jumped last week by 62,000 to 589,000, the Labor Department reported. That was much more than the 540,000 tally economists expected. It left claims matching a 26-year high reached four weeks ago, although the work force has grown by about half since then.

Part of the rise was blamed on a backlog of claims that piled up in recent weeks as several states experienced computer crashes from a crush of filings, a government analyst said.

The number of unemployed people continuing to draw jobless benefits soared by 97,000 to 4.6 million. That figure, too, was above analysts' expectations, and was up considerably from a year ago, when 2.7 million people were receiving such aid. The pickup shows that those out of work are having trouble finding a new job.

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