Feb. 21 (Bloomberg) -- The number of Americans receiving unemployment insurance climbed to the highest since October 2005 as faltering economic growth prompted companies to cut payrolls.

The number of people continuing to collect benefits rose to 2.784 million in the week ended Feb. 9, from 2.736 million a week earlier, the Labor Department said today in Washington. First-time jobless claims decreased by 9,000 to 349,000 in the week ended Feb. 16, from a revised 358,000 a week earlier.

A slumping labor market poses a threat to consumer spending, which economists forecast will grow at the slowest rate in six years this quarter. Federal Reserve officials yesterday raised their forecasts for unemployment, while cutting their growth forecast for the U.S. in 2008 by half a percentage point.

``Claims are suggesting even more weakening in the employment data,'' said James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut. ``There's not enough data out there to definitively point to a recession but the direction of these employment-related figures and other reports are certainly pointing there.''

Treasury securities were little changed after the report. Ten-year note yields were at 3.87 percent at 8:42 a.m. in New York, from 3.89 percent late yesterday.

The four-week moving average of claims, a less volatile measure, rose to 360,500, the highest since October 2005.

Economists forecast initial claims would rise to 349,000 from an originally reported 348,000 a week earlier, according to the median of 42 projections in a Bloomberg News survey. Estimates ranged from 335,000 to 360,000.

Unemployment Rate

The unemployment rate among people eligible for benefits, which tends to track the U.S. jobless rate, held at 2.1 percent.

The level of continuing claims typically is more closely aligned with the state of hiring. The U.S. last month lost jobs for the first time in more than four years, according to Labor Department figures.

The government surveys employers every month in the week that includes the 12th. It is scheduled to report February's employment figures on March 7.

In today's report, 16 states and territories reported an increase in new claims, while 37 had a decrease. This data is reported with a one-week lag.

Filings for jobless benefits have crept higher. Weekly claims so far this year have averaged 338,600, compared with 322,200 for all of 2007 and 313,000 in 2006. Jobless claims averaged 416,000 a week during the last recession in 2001.

Weakness Spreading

Reports have indicated that weakness in the labor market may be spreading beyond housing and finance-related industries. Santa Ana, California-based Advanced Medical Optics Inc. said Feb. 15 it is cutting about 150 jobs, or 4 percent of its global workforce.

The Fed yesterday raised its forecast range for the fourth- quarter jobless rate to between 5.2 percent and 5.3 percent, up from a range of 4.8 percent to 4.9 percent in the central bank's previous forecast in October.

``The drop in housing activity continued to intensify, conditions in labor markets appeared to have deteriorated noticeably near year-end and factory output had weakened,'' according to minutes released yesterday of the Federal Open Market Committee's meeting that ended Jan. 30.

Consumer spending, which accounts for two-thirds of the economy, grew at a 2 percent pace in the fourth quarter, according to Commerce Department figures. Economists surveyed by Bloomberg News earlier this month forecast spending will grow at a 1 percent rate this quarter, which would be the smallest gain since 2001.

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

Last Updated: February 21, 2008 08:54 EST