President Bush expressed confidence yesterday that his $168 billion (£85 billion) tax rebate programme would kick-start an economic recovery as the US Labour Department reported better than expected unemployment data.

In a speech in St Louis, Missouri, Mr Bush said he was certain that the fiscal package – in which a $600 tax refund cheque was sent to working Americans this week – was generous enough to boost the US economy. The world’s largest economy, which is believed to be in recession, grew by only 0.6 per cent in the first quarter of the year.

Wall Street economists were wary of the better than expected employment figures and interpreted them as a short-term blip, giving warning that jobless numbers for this month would be significantly weaker as a result. According to Labour Department data, the number of Americans signing on for unemployment benefits for the first time rose by 20,000 in April. Economists had been expecting an increase of 75,000.

Overall, about 5 per cent of the American workforce is unemployed, down slightly from 5.1 per cent in March. It is widely expected that 6 per cent of the workforce will be out of a job by the end of the year. The greatest increases in unemployment were in manufacturing, which is benefiting from the weakness of the dollar. American-made goods are cheaper for overseas buyers while the US currency is so soft.

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Rob Carnell, US economist for ING, the Dutch bank, said: “Almost all of the decline came from the manufacturing sector – the one bit of the US economy that should be seeing some support from a weaker dollar. Manufacturing employment fell 46K, in line with Thursday’s weak manufacturing ISM employment survey.”

Ian Shepherdson, chief US economist for High Frequency Economics, said: “All the payroll improvement was in the service-providing sector, where business services rose 39,000, compared to the prior three-month average of minus 34,000. This is noise. The seasonal factor was 81K bigger than in April 07. Expect much weaker headlines in May.”

Jobs in construction also fell sharply – by 61,000 – last month, signalling further declines across the US housing market. Builders have sought to halt new residential projects because of a glut of unsold homes. The misery of the market claimed another victim yesterday as Linens ’n Things, the textiles and homewares retailer, filed for Chapter 11 bankruptcy protection. It closed 120 stores – almost a sixth of its total – but managed to secure $700 million in emergency financing.

GMAC, the mortgage lender, was believed to be meeting with its own banks and bondholders to secure new lines of credit and negotiate new terms with its investors. GMAC’s Residential Capital unit posted an $859 million first-quarter loss on Tuesday, its sixth-consecutive quarterly loss, as its international operations deteriorated. ResCap still has $17 billion of debt due this year, with cash or similarly liquid assets of $4.2 billion at the end of March, the company said this week.

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