April 10 (Bloomberg) -- The number of Americans filing first-time claims for unemployment insurance last week fell the most since September 2005, while the total remaining on benefits rose to the highest in almost four years.

Initial jobless claims dropped by 53,000, more than double the decline economists had forecast, to 357,000 in the week ended April 5, the Labor Department said today in Washington. The four-week moving average, a less volatile measure, increased to 378,250, reaching the highest level since October 2005.

U.S. businesses may be waiting to see how deep the economic slowdown will be before cutting additional workers, while some maintain staff to help meet export demand. Still, the threat of a recession is mounting as rising unemployment prompts consumers to restrain spending, which accounts for two-thirds of the economy.

``Labor overall has deteriorated, obviously, but at this point the magnitude of the decline has not been that bad,'' Russell Price, senior economist at H&R Block Financial Advisors Ltd. in Detroit, said before the report. ``It has not been as abrupt or down as much as you would normally expect in a recession.''

Trade Deficit Widens

Another government report showed the U.S. trade deficit unexpectedly widened in February, reflecting a jump in imports of automobiles and machinery that swamped record exports. The gap grew 5.7 percent to $62.3 billion, the highest since November, from a revised $59 billion in January, the Commerce Department said today in Washington.

Economists had forecast claims would fall to 383,000, from a previously reported 407,000 for the prior week, according to the median of 40 projections in a Bloomberg News survey. Estimates ranged from 350,000 to 410,000. Price forecast claims would fall to 365,000.

Claims for the week ended March 29, which reached the highest since September 2005, may have been pushed higher as some state unemployment offices processed a backlog from the prior week, which included the Good Friday holiday, a Labor spokesman said last week.

Payroll Reductions

Even so, evidence suggests the labor market has weakened. The number of people remaining on unemployment rolls gained to 2.94 million the week ended March 29, from 2.937 million the prior week, today's report showed.

Economists look to the level of continuing claims for indications on the direction of employment. Employers eliminated 80,000 workers from payrolls in March, a third consecutive decline and the biggest in five years, the government reported on April 4. The unemployment rate rose to 5.1 percent.

The unemployment rate among people eligible for benefits, which tends to track the U.S. jobless rate, was unchanged at 2.2 percent in the week ended March 29, according to today's report. Twenty-nine states and territories reported an increase in new claims, while 23 reported a decrease and one reported no change. This data is also reported with a one-week lag.

The weakening labor market, falling home prices and slowing retail sales are pointing to a worsening economy. Growth in the U.S. will come to a halt the first two quarters of this year, according to the median forecast of economists surveyed by Bloomberg News earlier this month. A majority of those polled now project the U.S. is, or will be, in a recession.

Fed's Response

Troubles are extending beyond housing and financial service companies. Advanced Micro Devices Inc. said April 7 it will cut about 1,650 jobs, or 10 percent of its workforce. The chipmaker said that first-quarter sales slumped 22 percent, missing its own forecasts.

Federal Reserve officials anticipated the economy will shrink in the first half of the year and expressed some concern about ``a prolonged and severe economic downturn'' as they cut interest rates last month, according to minutes of the March 18 Federal Open Market Committee meeting, released April 8.

The Fed has cut its benchmark overnight lending rate by 3 percentage points since September to try to avert a recession. Last month, Chairman Ben S. Bernanke also invoked rarely used authority to provide emergency financing for investment banks and rescued Bear Stearns Cos. from bankruptcy.

``Many participants thought some contraction in economic activity in the first half of 2008 now appeared likely,'' the Fed said in the minutes.

To contact the reporter on this story: Courtney Schlisserman in Washington cschlisserma@bloomberg.net

Last Updated: April 10, 2008 08:47 EDT