Dec. 31 (Bloomberg) -- The number of Americans filing first-time claims for unemployment benefits tumbled last week, skewed by the shortened Christmas workweek, while total jobless rolls reached a 26-year high, signaling a worsening labor market as the economy heads into the second year of a recession.

Initial jobless claims dropped by 94,000 to 492,000 in the week that ended Dec. 27, the lowest level in almost two months, the Labor Department said today in Washington. The number of people collecting benefits jumped in the prior week to the highest level since 1982.

The government often has trouble adjusting the weekly figures for seasonal variations during holidays, a Labor spokesman said. Companies from automakers to banks are stepping up the pace of firings after the worst credit crisis in seven decades caused the economic slump to intensify.

“The underlying picture is terrible for the labor market,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. The initial claims figures were “distorted by some sort of breakdown in the seasonal adjustment process, with the holidays.”

Jobless claims were projected to decline to 575,000 from the prior week’s unrevised 586,000, according to the median projection of 17 economists in a Bloomberg News survey. Estimates ranged from 540,000 to 585,000.

The magnitude of the drop in claims last week indicates the figures will remain volatile, likely jumping to make up for last week’s decline, the Labor spokesman said.

Auto Shutdowns

“It’s likely we will have other weeks go askew,” he said. In addition, the shutdowns by automakers, which have come earlier than normal this year, are also contributing to the volatility, the spokesman said.

The four-week moving average, a less volatile measure, fell to 552,250 for the period ending Dec. 27, compared with 558,000 the prior week.

The number of people staying on benefit rolls surged to 4.506 million, the highest level since December 1982, in the week ended Dec. 20 from 4.37 million.

The unemployment rate among people eligible for benefits, which tends to track the jobless rate, rose to 3.4 percent, the highest since November 1983. The unemployment rate, continuing claims and the state claims figures are reported with a one-week lag.

Breakdown by State

Thirty-seven states and territories reported an increase in new claims for the week ended Dec. 20, while 16 had a decrease.

Jobless claims reflect weekly firings and tend to rise as job growth -- measured by the monthly payroll report -- slows. The government is scheduled to release its December employment report on Jan. 9.

So far this year, job losses have totaled 1.9 million and economists surveyed by Bloomberg forecast payroll cuts of 475,000 in December. Jobs losses are likely to continue into next year, as economists surveyed by Bloomberg this month forecast the jobless rate to rise to 8.2 percent by the end of 2009 from 6.7 percent last month.

Recession

The economy entered a recession in December 2007, the National Bureau of Economic Research announced Dec. 1. Economists surveyed by Bloomberg earlier this month projected gross domestic product would shrink this quarter by 4.3 percent, the biggest decline since 1982, and would continue contracting through the first half of 2009.

Auto-parts makers and suppliers are firing more workers as General Motors Corp. and Chrysler LLC seek government funds to continue to operate. Auto industry sales in November fell to the lowest since 1982.

U.S. automakers expand their traditional holiday shutdowns to clear out unwanted stock, signaling claims may continue to rise. Chrysler idled all 30 of its assembly plants on Dec. 17 for at least a month, while Ford said 9 of 15 North American factories would shut for the first week in January. GM announced output cuts Dec. 12 that affect 20 plants.

Auto-parts makers have said they will have to mimic some of the plant closings. Federal-Mogul Corp., the auto-parts supplier controlled by billionaire Carl Icahn, will cut 4,600 jobs worldwide in addition to 4,000 cuts announced in September, the Southfield, Michigan-based supplier said in a statement Dec. 19.

“We continue to take actions in response to the ongoing significant downturn in regional markets and global industry outlook,” Chief Executive Officer Jose Marie Alapont said in the statement.

President-elect Barack Obama is preparing a two-year stimulus package worth as much as $850 billion to save or create 3 million jobs and revive growth.

To contact the reporter on this story: Bob Willis in Washington bwillis@bloomberg.net

Last Updated: December 31, 2008 08:53 EST