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 However, some economists expect that as many as 150,000 jobs were eliminated. The economy has given up jobs every month since the start of the year and many economists believe the U.S. already has entered a recession.
The unemployment rate was 4.8 percent in February, down from 4.9 percent in January. Analysts expect it to rise to 5.0 percent in March.
The number of new people signing up for unemployment benefits last week shot up to the highest level in more than two years, fresh evidence of the damage to a national economy clobbered by housing, credit and financial crises.
The Labor Department reported Thursday that new applications filed for unemployment insurance jumped by a seasonally adjusted 38,000 to 407,000 for the week ending March 29. The increase left claims at their highest point since Sept. 17, 2005, following the blows of the devastating Gulf Coast hurricanes.
"This report supports the view that the jobs market is deteriorating toward recessionary conditions," said T.J. Marta, a fixed-income strategist at RBC Capital Markets.
The latest snapshot of labor activity was worse than economists had anticipated. They had predicted claims would be much lower, around 365,000.
In other economic news, the Institute for Supply Management said the nation's service sector
-- including retailers, hotels, insurance companies and other firms -- contracted in March but not as much as the month before. The institute's index registered 49.6 last month, compared to 49.3 in February. A reading below 50 indicates contraction, while a reading above 50 indicates growth.
On Wall Street, investors took the latest batch of economic news in stride. The Dow Jones industrials gained 20.20 points to close at 12,626.03.
A government analyst said some of the big increase in jobless claims may have been related to an early Easter holiday this year, where claims that weren't filed or processed during the holiday week were pushed forward into the following week.
Still, looking at the longer-term trend there was little doubt of the pickup in unemployment filings. A year ago, new claims stood at 319,000.
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 Meanwhile, the number of people continuing to collect unemployment benefits rose by a sharp 97,000 to 2.94 million for the week ending March 22, the most recent period for which that information is available. That was the highest since July 17, 2004.
Democratic presidential contenders Barack Obama and Hillary Rodham Clinton seized on the jobless benefits figures as underscoring the need for new economic leadership in the White House.
The economy is suffering from a trio of mighty blows -- a housing collapse, a credit crunch and a financial system in turmoil. That's causing people and businesses to hunker down, crimping spending, capital investment and hiring. Those things in turn further weaken the economy, in a vicious cycle.
For the first time, Federal Reserve Chairman Ben Bernanke acknowledged on Wednesday said the country could be heading toward a recession. Many other economists and the public believe it's already there.
Employers cuts jobs in January and February, and economists are predicting more losses when the government releases the March employment report on Friday.
The nation's unemployment rate, now at 4.8 percent, is expected to rise to 5 percent in March. The jobless rate could climb to 5.5 percent or higher by the end of this year, according to some analysts' projections.
To bolster the economy the Fed has been cutting a key interest rate to induce people and companies to boost their spending. Many analysts still predict another reduction to that rate when the central bank meets later this month, although Bernanke didn't tip his hand about the Fed's next rate move.
[Associated
Press]
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