US factory orders suffered their biggest fall for eight years in October, underlining the severity of the recession that is gripping America.

The US Commerce Department said yesterday that new orders to factories slumped a further 5.1 per cent, down for the third consecutive month, to $407 billion (£276 billion).

It was the biggest drop in orders since an 8.5 per cent plunge in July 2000 and even worse than the 4 per cent predicted by economists.

The difficulties being suffered by retailers were illustrated by the 5 per cent fall in new orders for consumer goods. Orders for cars and car parts fell by 4.5 per cent as Americans decided to make their existing vehicles last through the economic downturn.

There was further bad news from the Labour Department, which said that the number of workers continuing to rely on benefits hit a 26-year high, bearing out the depressing job-loss figures released earlier this week.

The number of laid-off workers continuing to claim unemployment benefits rose to 4.09 million in the week to November, the highest number since December 1982.

The proportion of the workforce receiving benefits was 3.1 per cent in the week to November 29, up from 3 per cent a week earlier.

However, there was a fall last week in the number of Americans putting in new claims for unemployment benefits. About 509,000 people applied for new benefits last week, down from 530,000 the previous week and less than the 537,000 forecast by analysts. However, economists refused to draw any comfort from the unexpected dip.

Ian Shepherdson, chief US economist of High Frequency Economics, attributed the fall in new claims to the Thanksgiving holiday last week. “This is a pleasant surprise, but there’s no reason to think it means the trend for claims is turning,” he said. “We expect a rebound from this number over the next few weeks. Companies are seeking to make more, not fewer, layoffs at this point in the cycle.”

Mr Shepherdson’s pessimism was borne out by a survey released yesterday showing the declining confidence of American chief executives.

The quarterly Business Roundtable survey found that 60 per cent of bosses expected to cut jobs over the coming six months and 52 per cent planned to cut capital spending. Of the chief executives surveyed, 45 per cent predicted a decline in sales over the same six months.

The member companies of the Business Roundtable between them employ about 10 million people.

Of cars and jobs

$407bn Value of new orders to US factories in October

4.5% Fall in orders for cars and car parts

3.1% Proportion of US workforce on unemployment benefits

Source: US Commerce and Labour Departments

Explore Economics

• Pre-Budget Report 2009

• Budget 2009

• World Economic Forum

• The Times MPC

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive