The Labor Department reported Thursday that 356,000 claims for jobless benefits were filed last week, a decline of 22,000 from the previous week. The decline only erased a part of the huge jump of 72,000 in claims of the previous week.
The four-week average for jobless claims rose to 335,000, which was the highest level in a month.
A severe slowdown in economic growth that has raised concerns about a possible recession has begun to affect the labor market. The government reported last week that the economy shed 17,000 jobs in January, the first monthly job loss in more than four years.
Analysts said that the performance of claims in the past two weeks showed that a surprising decline in claims from mid-December to mid-January was a statistical fluke caused by difficulty in adjusting the numbers around holidays and the start of the year. They predicted further increases in jobless claims in coming weeks as more companies are forced to lay off employees.
"In this environment, simply cutting back on hiring will not be enough for companies to maintain earnings as demand slows. Jobs will have to be cut too," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.
In other economic news, the nation's retailers reported weak sales in January. The disappointing sales figures, which followed a lackluster holiday season, showed that consumers are cutting back in the face of high gasoline and food prices, a slumping housing market and a severe credit crisis.
Wal-Mart, the world's largest retailer, reported a 0.5 percent gain in same-store sales, or business at stores open at least a year, far below the 2 percent gain that had been expected by analysts surveyed by Thomson Financial.
Many economists believe that the current quarter will be the maximum danger point for the economy to slip into a recession, which would be the first downturn since 2001.
Those fears were increased on Tuesday when the Institute for Supply Management reported a startling contraction in the service sector, triggering a 370-point drop that day in the Dow Jones industrial average.
On Wednesday, Macy's department stores announced that the company was cutting 2,300 jobs, adding to worries that the current economic slowdown is spreading.
President Bush is urging the Senate to quickly pass an economic stimulus plan that would provide tax rebates to millions of households this summer as a way to boost consumer spending and help combat the economic sluggishness.
The overall economy, as measured by the gross domestic product, slowed to an anemic growth rate of just 0.6 percent in the final three months of last year. Some economists believe the GDP will turn negative in the current quarter. One common definition of a recession is two consecutive quarterly declines in the GDP.
For the week ending Jan. 26, 43 states and territories reported a decrease in claims while nine reported increases.
The biggest drop was in Michigan, a fall of 7,546 that was attributed to fewer layoffs in all industries. The biggest increase for the week of Jan. 26 occurred in Wisconsin, a jump of 2,335 claims applications, an increase that was blamed on higher layoffs in construction, trade, transportation, warehousing and manufacturing industries.
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