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The number of people filing for unemployment benefits hit a 26-year high last week, as the deepening recession forced more employers to cut jobs.

First-time claims for unemployment rose 5.4 percent, to 586,000 for the week ending Dec. 20, the Labor Department reported this morning. The last time claims were that high was Nov. 27, 1982. The four-week moving average, which is a less volatile indicator, rose to 558,000 from 544,250, also a 26-year high.

Orders for durable goods, such as appliances and televisions, dropped 1 percent to $186.9 billion, the U.S. Census Bureau said today. It was the fourth consecutive monthly drop but a much smaller decline than the 8.4 percent drop in October, thanks largely to orders for defense-related goods. Excluding those, which can vary widely quarter to quarter, new orders decreased by 0.9 percent.

Prices fell 1.1 percent last month, compared with 0.5 percent, the Commerce Department reported today. Much of that was due to falling gasoline and food prices. When food and energy are excluded, prices were actually flat.

Consumer spending continued to decline in November, falling 0.6 percent, even as consumers benefited from falling gasoline prices and retailers attempted to lure them into stores with deep discounts in an effort to salvage the holiday shopping season.

Retailers might have succeeded to an extent. November's drop was smaller than the 1 percent drop in spending in October. But just as they did in October, consumers also kept a chunk of their savings at the pump in their pockets. Personal savings as a percentage of disposable income was 2.8 percent in November, compared with 2.4 in October.

Mortgage rates are falling as this week's dramatic action by the Federal Reserve provides a boost to the dismal housing market, but the nation's unemployment rolls are stuck at historically high levels amid a deepening recession.

Mortgage giant Freddie Mac (nyse: FRE - news - people ) on Thursday reported that rates had fallen to the lowest level on records dating back to 1971. Average rates on 30-year fixed-rate mortgages dropped to 5.19 percent, down from the year's previous low of 5.47 percent, set last week.

Jobs data from the government, while better than expected, was still sobering. The Labor Department on Thursday said its tally of initial jobless benefit claims fell to a seasonally adjusted 554,000 from an upwardly revised figure of 575,000 the previous week. The new tally was slightly below economists' expectations of 558,000 claims.

Another slight improvement was seen in the number of people who continue to receive jobless benefits, which declined to 4.38 million from 4.43 million the previous week. Economists expected a slight increase to 4.45 million.

Still, claims remain near the highest level since 1982, though the labor force has grown by about half since then.

And the cuts continue. Water treatment and storage systems maker Pentair Inc. (nyse: PNR - news - people ) said Thursday that it will cut more than 10 percent of its work force, or about 1,600 jobs, due to a faster-than-expected drop-off in demand and consumer spending. One day earlier, hard drive maker Western Digital Corp. (nyse: WDC - news - people ), managed-care company Aetna Inc. (nyse: AET - news - people ), and Newell Rubbermaid Inc. (nyse: NWL - news - people ), maker of products including Rubbermaid storage containers and Sharpie pens, announced mass job cuts.

Meanwhile, President-elect Barack Obama is laying the groundwork for a giant economic stimulus package, worth possibly $850 billion over two years, which Democratic congressional leaders say could be passed within two weeks of Obama taking office.

As U.S. jobs disappear at a rapid clip, the official unemployment figure seems understated. While November's 6.7% rate is a full 2% higher than the same time last year, the rate remains well below the 10.8% postwar peak, reached in November 1982. One issue is that the official unemployment number captures only a slice of the total joblessness in the U.S. To be counted as unemployed in this statistic, a worker must not have a job, be currently available for work, and have actively sought employment within the last four weeks. In other words, a lot of the jobless are left out of the government's tally.

Rajeev Dhawan, director of Georgia State University's Robinson College of Business, says the official unemployment rate is "not a good measure of what is happening in the economy. It's drawn from a sample too small and filled with too many assumptions. Absolute job losses and retail sales give a better idea of what's really happening in the economy."

Fortunately, digging deeper into the labyrinth of the U.S. Bureau of Labor Statistics' (BLS) Web site can offer a more complete, if imperfect, picture of joblessness. Since 1993, the BLS has tracked a category of unemployed called U-6, which captures the total unemployed, plus what the agency calls "marginally attached" workers and those employed part-time "for economic reasons." For November 2008, that rate was 12.5%, nearly double the official unemployment rate and the highest since the government started tracking this category.

Outside Looking In

Marginally attached workers are those with no job and who aren't hunting for one but who are interested in working—people who have left the workforce because the employment situation seems so bleak that they've stopped trying. This measure covers anyone who has looked for work in the past 12 months, not just the past four weeks. In November, 1.9 million workers were marginally attached, up 637,000 from a month prior. This category includes long-term unemployed, such as factory workers who can't find a job paying close to what they'd been earning before. Unemployment rates in construction and extraction jobs such as mining hit 12.1% in November, followed by 9.4% in production jobs. That means the ranks of the marginally attached will increase.

Those employed part-time for economic reasons, who are counted as employed in the official statistic, want and are available for full-time work but have had to settle for a part-time schedule. As of November, the number of workers in this category rose by 621,000. There are now 7.3 million involuntary part-time workers, up 2.8 million over the past 12 months.

Contract workers, sometimes known as freelancers or independent contractors, face a special set of problems when it comes to being counted by the government. First, employers aren't required to report layoffs of contract workers to the government, so when companies say they're cutting their contractor workforce—as Google (GOOG) did in October—no one knows by how much. These job cuts are also not recorded in the official job-cut statistics tracked by the government. In other words, the 533,000 jobs lost in the November count don't include any of the tens of thousands of contract workers being slashed from company payrolls as the recession deepens.

Falling Between the Cracks

Some self-employed workers are incorporated into other BLS statistics, but not all of them are counted. Those traditionally considered self-employed, such as independent real estate agents or accountants, are included in the government's household survey of the unemployed. But those working as long-term freelancers for one particular company without the benefits of being staff members—often dubbed "permalancers"—are not. That means a good portion of this group, which the Government Accountability Office says makes up 10% of the workforce, isn't properly tracked. "We really don't know what is happening with the [contractor employment] numbers," says Sara Horowitz, founder of the Freelancers Union, a 93,000-member organization of contract workers. Horowitz says the government should develop better measures of contract workers, perhaps by identifying the number of contractor tax filings with the IRS each year. "An increasing part of the economy is driven by this new workforce, but government agencies haven't updated their methods for counting them," she says.

The BLS does capture other pieces of the unemployment puzzle. It breaks out such demographic categories as education levels. As of November the unemployment rate for college graduates increased less than a percentage point, to 3.1%, while the unemployment rate for high school dropouts rose from 7.6% to 10.5%. The BLS also tracks such categories as age and ethnicity; the unemployment rate in November was 32% for black teenagers, for example. Other data offer state-by-state comparisons of unemployment rates. In the most recent data, which cover the first 10 months of 2008, Rhode Island and Michigan were tied with the highest unemployment rate, at 9.3%, with California next at 8.2%. Though not officially a state, Puerto Rico's rate stands at 12%.

Still, calls for improving the BLS metrics continue. While Horowitz presses for better accounting of contract workers, Georgia State's Dhawan says the surveys need to account for population growth. "Fifty years ago, the [official unemployment] number had some validity," he says. "Now I have little faith in it."

New claims for jobless benefits rose more than expected last week, exceeding even gloomy expectations for an economy stuck in a recession that seems to be deepening.

The Labor Department reported Thursday that initial applications for jobless benefits in the week ending Dec. 6 rose to a seasonally adjusted 573,000 from an upwardly revised figure of 515,000 in the previous week. That was far more than the 525,000 claims Wall Street economists expected.

Elsewhere, the U.S. trade deficit rose unexpectedly in October as a spreading global recession dampened the once-strong sales of American exports and the volume of oil imports surged by a record amount, the Commerce Department said.

More layoffs were announced Thursday. New Britain, Conn.-based tool maker Stanley Works (nyse: SWK - news - people ) said it plans to cut 2,000 jobs and close three manufacturing facilities, while Sara Lee Corp. (nyse: SLE - news - people ), known for food brands such as Jimmy Dean and Hillshire Farm, said it will cut 700 jobs as the Downers Grove, Ill.-based company outsources parts of its business.

New jobless claims last week reached their highest level since November 1982, though the labor force has grown by about half since then.

The trade deficit rose to $57.2 billion in October, from an imbalance of $56.6 billion in September. Analysts had been looking for the deficit to decline to $53.5 billion on lower oil prices. Oil prices did drop by a record amount, but that was offset by a record surge in the volume of oil imports.

The reports, along with investor concerns that an auto bailout bill may not pass the Senate, sent stock markets slightly lower. The Dow Jones industrial average fell about 15 points in morning trading.

Unemployment in the 15 nations that share the euro shot up to 7.7 percent in October - the highest level in two years - as growth dropped sharply, the EU statistics agency Eurostat said Friday.

Prices also plunged with the annual inflation rate sinking to 2.1 percent in November from 3.2 percent in October, Eurostat said. Lower inflation gives the European Central Bank more room to reduce interest rates, which would help stoke growth.

The euro area officially went into a recession in spring and summer this year when growth shrank in the second and third quarters, as a financial crisis curbed global demand.

In real terms, this means job losses - lots of them and more to come.

Eurostat said some 225,000 more people were seeking work in October from the previous month. That means some 12 million people in the euro area were out of work last month. It also said unemployment in September was worse than it had first estimated, revising the rate upward to 7.6 percent from the 7.5 percent it reported last month.

Across all the EU's 27 states, some 17 million people were job-hunting in October, 290,000 more than a month earlier. The EU jobless rate was 7.1 percent in October, up from 7 percent in September.

The EU's executive Commission forecasts that the labor market will get even worse next year, with the euro-zone rate climbing to 8.4 percent in 2009 from a decade-low of 7 percent at the end of 2007. This will see an extra 2 million people out of work.

In crafting a spending plan, federal officials must choose between measures that give a fast lift to the economy and those that create sustainable new jobs

Spending on infrastructure projects figures to be part of any economic stimulus package Congress considers. Chris Hondros/Getty Images

It's now become apparent that the most painful part of the economic downturn—the part where many thousands of people lose their jobs—is picking up speed. On Friday, Nov. 7, the Labor Dept. announced that this year through October the U.S. economy lost 1.2 million jobs. That brought the unemployment rate to 6.5%—its highest level since 1994. Add to that a stream of recent layoff announcements (BusinessWeek.com, 10/20/08) by the likes of Merck (MRK), General Electric (GE), and Yahoo (YHOO). Just this week, DHL (DPWGN.DE) announced it would cut 9,500 jobs as it pulled out of express package delivery in the U.S.

In his press conference on Nov. 7, President-elect Barack Obama said that passing an economic stimulus plan would be his first priority as President. "The American people need help," said Obama. "This economy is in bad shape." A stimulus package of very large government spending projects is almost certain, if not in the lame-duck congressional session beginning Nov. 17, then immediately after Obama takes office on Jan. 20.

Some of the likely congressional actions will address the immediate needs of those who are without work. It is likely to enact a package that includes extending the period in which the unemployed can draw benefits, from 26 weeks to up to 39 weeks.

Heavy Dose of Job Creation

But beyond that, there are conflicting views on which spending is the most likely to create jobs, how soon, and for whom.

Taxpayer money can be used in several ways to aid the job market—directly, by creating jobs or investing in companies that will hire people to build things; and indirectly, putting cash in people's pockets in hopes that they spend it and maintain jobs down the line. Many Republicans argue that the government is better off cutting taxes; the party has put forward ideas like doubling the child tax credit and temporarily scrapping the capital-gains tax.

But with an incoming Democratic Administration and Democrat-dominated Congress, an economic stimulus bill will likely have a heavy dose of job creation and increased benefits for the jobless.

Focus on Infrastructure and Energy

On the campaign trail, Obama proposed creating jobs in two main areas: infrastructure and energy. For infrastructure, he suggested the U.S. create a National Infrastructure Reinvestment Bank, an independent entity that would receive $60 billion over 10 years from the federal government to finance transportation infrastructure projects. He said this plan would create up to 2 million new direct and indirect jobs and stimulate approximately $35 billion per year in new economic activity.

In October, U.S. House Speaker Nancy Pelosi (D-Calif.) unveiled a $150 billion stimulus plan that includes infrastructure spending and federal support to states governments, which Obama backed. The U.S. House had passed a stimulus bill in September with $18.5 billion for infrastructure projects, but Republicans opposed it.

The Bush Administration's Transportation Dept. has criticized such proposals, saying that building or rebuilding highways, bridges, and train systems requires a long series of steps to plan, design, get environmental clearance, and construct. Jack Wells, the department's economist, says that only 27% of the funds being proposed in the Pelosi package would be disbursed within a year.