The Labour Department reported on Thursday that the number of people continuing to draw unemployment benefits jumped by 122,000 to 3.84 million in late October, well above analysts' estimates of 3.74 million.

That was the highest level since late February 1983, when the US was struggling to recover from a long and painful recession. The year-ago tally was 2.59 million people.

New filings for jobless benefits for the week ending Nov 1 dipped to 481,000, a still-elevated level that suggests companies are in a cost-cutting mode. The increase in continuing claims lags by a week, and represents the total for the week ending Oct 25.

The work force was much smaller in February 1983, when the number of people continuing to claim benefits was 3.88 million. At that time, about 87.2 million Americans were in the work force, compared with almost 134 million today. That's one reason the unemployment rate was 10.4 per cent in February 1983, compared with 6.1 per cent last month.

Still, the increase in continuing claims indicates fewer people are leaving the rolls as newly laid off workers are added. That means unemployed workers may be having a harder time finding a job than in previous weeks.

Democrats in Congress are pushing to include an extension of unemployment benefits in a new stimulus package, which could be taken up this month. Benefits last 26 weeks.

Congress approved a special 13-week extension of benefits in June, and the department said about 773,000 people claimed benefits through that programme for the week ending Oct 18, the most recent data available. That's in addition to the 3.84 million that are receiving benefits through the traditional programme.

Americans hit by layoffs, shrinking nest eggs and other stresses are pulling back even more, sending sales at many big retailers down in what may have been the weakest October in decades. That further darkened the outlook for the holiday sales season.

Target and Costco were among the many retailers reporting sales declines last month. Wal-Mart Stores, the world's largest retailer, however, logged a sales gain.

On Wall Street, stocks slumped. The Dow Jones industrials were down about 490 points in late-afternoon trading.

Hoping to prevent a deep recession, the Federal Reserve last week ratcheted down interest rates to 1 per cent and left the door open to further reductions.

America's economic condition has rapidly deteriorated in just a few months. The economy contracted at a 0.3 per cent pace in the July-September quarter, likely signaling the start of a recession.

It was the worst showing since the last recession, in 2001, and reflected a massive pull back by consumers.

With the economy sinking and consumers appetites flagging, employers have been slashing jobs. The government is expected to report a net loss of another 200,000 jobs when it releases the October employment report on Friday. The unemployment rate - now at 6.1 per cent - is expected to climb to 6.3 per cent in October.

As American consumers watch jobs disappear and their wealth shrink, they'll probably retrench even further.

That's why analysts predict the economy is still shrinking in the current October-December quarter and will continue to contract during the first quarter of next year. All that more than fulfills a classic definition of a recession: two straight quarters of contracting economic activity.

Yet another report out on Thursday showed the efficiency of US workers slowed sharply in the summer as overall production, or output, declined, reflecting the hit to consumers from housing, credit and financial troubles.

Productivity - the amount an employee produces for every hour on the job - grew at an annual pace of 1.1 per cent in the July-September quarter, down from a 3.6 per cent growth rate in the second quarter, the Labour Department reported.

With productivity growth slowing, labour costs picked up. Unit labour costs - a measure of how much companies pay workers for every unit of output they produce- increased at a 3.6 per cent pace in the third quarter, compared with a 0.1 per cent rate of decline in the prior period.

The 1.1 per cent productivity growth logged in the summer beat economists' expectations for a 0.8 per cent growth rate. The pickup in labour costs- while welcome to workers - was faster than the 2.8 per cent pace economists were forecasting.

Economists often look at labour compensation for clues about inflation. These days, however, the Federal Reserve and analysts are more concerned about the economy's feeble state. While the pick up in labour costs might raise some economists' eyebrows, the Fed is predicting inflation pressures will lessen as the economy loses traction.

The 1.1 per cent productivity gain was the smallest since the final quarter of last year, while the increase in labour costs was the biggest since that time. -- AP