First-time unemployment applications decreased by 31,000 to 639,000 in the week that ended Feb. 28, less than anticipated, from a 26-year high of 670,000 the prior week, the Labor Department said today in Washington. The number of people staying on benefit rolls eased from a record.

Companies such as J.Crew Inc. have stepped up the pace of firings as sales slump, contributing to a worsening recession. The Obama administration is counting on a series of stimulus efforts to jolt the economy and create or save 3.5 million jobs.

“The labor market is awful,” Christopher Low, chief economist at FTN Financial in New York, said before the report. Economists forecast claims would fall to 650,000, from an originally reported 667,000 a week earlier, according to the median of 43 estimates in a Bloomberg News survey. Projections ranged from 620,000 to 680,000.

Stock-index futures slid and Treasuries advanced. Contracts on the Standard & Poor’s 500 Stock Index dropped 1.8 percent to 695.70 at 8:35 a.m. in New York. Benchmark 10-year note yields fell to 2.88 percent from 2.98 percent late yesterday.

Productivity Drops

Worker productivity in the fourth quarter fell for the first time in a year as output dropped even faster than companies cut jobs, another report from Labor also showed.

Productivity, a measure of employee output per hour, decreased at a 0.4 percent annual rate, down from the 3.2 percent gain Labor estimated last month. Labor costs jumped at a 5.7 percent pace, more than first estimated and the biggest gain in two years.

The four-week moving average of initial claims, a less volatile measure, climbed to 641,750, the highest level since October 1982.

The unemployment rate among people eligible for benefits, which tends to track the jobless rate, held at 3.8 percent in the week ended Feb. 21. Fifteen states and territories reported an increase in new claims for that same period, while 38 reported a decrease.

Benefit Rolls

The total number of people receiving benefits decreased to 5.106 million in the week ended Feb. 21 from a record 5.12 million the prior week.

Initial claims reflect weekly firings and tend to rise as job growth slows.

Labor is expected to report tomorrow that February payrolls fell 650,000, the most since 1949, according to a Bloomberg News survey. The unemployment rate probably surged to 7.9 percent.

A report from ADP Employer Services yesterday showed U.S. companies cut an estimated 667,000 jobs in February, up from 614,000 the month before. The ADP figures include only private employment and do not take into account hiring by government agencies.

Already the 3.6 million jobs lost since the U.S. recession began in December 2007 mark the biggest employment slump of any economic contraction in the postwar period.

The faltering labor market has caused consumer sentiment to plummet and crippled spending. Purchases dropped at a 4.3 percent rate in the fourth quarter, the most since 1980, according to Commerce Department figures.

Confidence Weakens

The Reuters/University of Michigan’s sentiment index measuring Americans’ outlook over the next six months, which tends to track consumer spending, fell to 50.5 in February. The group’s measure of current conditions, which reflects Americans’ perceptions of their financial situation and whether it’s a good time to buy expensive items such as cars, fell to 65.5.

Federal Reserve Chairman Ben S. Bernanke this week told the Senate Budget Committee that policy makers may need to expand aid to the banking system and take other aggressive measures even at the cost of soaring fiscal deficits.

“Without a reasonable degree of financial stability, a sustainable recovery will not occur,” the Fed chairman said.

J.Crew Group Inc., a U.S. clothing retailer, said Feb. 27 it is cutting about 95 jobs and suspending matching contributions to employee retirement-savings plans. Its announcement followed similar ones from Saks Inc., Macy’s Inc. and Limited Brands Inc. that they would reduce employment to control costs.

“We are operating in a very tough economic environment,” J.Crew Chief Executive Officer Millard Drexler said in a statement.

Cornell University said Feb. 27 it is offering buyouts to more than 1,300 non-faculty employees and fired 68 staff members to reduce costs. The university is facing a 10 percent budget shortfall, which amounts to a deficit of more than $200 million.

“Certainly, there will be more layoffs,” President David Skorton said in an interview in New York.

 SOURCE: Bloomberg