On Thursday, the Labor Department reported continuing claims for jobless benefits hit a 26-year high; and, the same day, the Senate approved a House bill to extend unemployment benefits by at least seven weeks. It would extend them for 13 weeks in states with unemployment rates higher than 6%.

New claims for unemployment benefits hit 542,000 last week, up 27,000 from the week before, as indicated by the seasonally adjusted data from the labor department. The worse-than-expected claims figure underlines how the credit crisis has spread through the economy. Continuing claims for benefits reached 4.01m people, up 109,000 from the week before and the highest since 1982, when the economy was in the midst of a deep downturn.

Senate Majority Leader Harry Reid said in a statement: “Extending unemployment insurance will help many struggling to afford the rising costs of living.”

The announcement that claims for unemployment benefits have risen means more than 1.2m jobs have been lost this year - the unemployment rate is now at a 14-year high of 6.5 per cent.

The President is expected to sign the aforementioned legislation soon. Spokeswoman, Dana Perino, said at the daily White House briefing: “Because of the tight job market, the president believes it would be appropriate to further extend unemployment benefits and he would sign legislation that is now in front of Congress.”

The agreement represents a concession by the outgoing administration as it wrestles with Congress over Democratic-backed measures to shore up the economy before Barack Obama takes office in January.