WASHINGTON - More people sought unemployment benefits than expected last week and laid-off workers found it harder to land new jobs as the economy struggled to show signs of life.

Sour economic indicators Thursday also plagued the retail industry: Weak factory orders were reported for December and sales declines last month for many major stores raised concerns about the industry's health.

Productivity rose sharply in the final months of the year, the government said - but only because layoffs cut the number of hours worked more than output fell.

"Business owners have gone into lockdown mode in what is turning out to be the worst economic environment since the early 1980s," said Tim Quinlan, economic analyst at Wachovia.

The news isn't expected to improve soon. On Friday the government releases employment figures for January, and economists predict it will report of net loss of 524,000 jobs.

They also expect to learn the unemployment rate rose to 7.5 percent last month, to a 17-year high, up from 7.2 percent in December, according to a survey by Thomson Reuters.

In its report Thursday on jobless claims, the Labor Department said the number of newly unemployed workers seeking benefits surged to a seasonally adjusted 626,000 last week, from the previous week's figure of 591,000.

The new level is the highest since October 1982, when the economy was in a steep recession, though the work force has grown by about half since then. A year ago, unemployment claims stood at 351,000.

More job cuts were announced Thursday - cosmetics maker Estee Lauder Cos. said it plans to cut 2,000 staffers, or 6 percent of its work force, and extend a hiring freeze. Women's clothing retailer Talbots Inc. announced 370 job cuts as part of a new $150 million cost-cutting program.

Laid-off workers are finding it harder to land new jobs as companies impose hiring freezes on top of job reductions.

The number of people remaining on the unemployment compensation rolls rose slightly to nearly 4.8 million, the Labor Department said. That figure was the most since records began in 1967. The figures on continuing jobless claims lag behind the number of new claims by one week.

Other new reports contributed to a dark portrait of the economy, which has been in recession for more than a year.

Factory orders fell by 3.9 percent in December, the Commerce Department said, a record fifth straight drop that was steeper than analysts expected. For all of 2008, orders for everything from autos to computers to food rose by only 0.4 percent. That was the weakest showing since orders fell 1.8 percent in 2002.