The number of American workers who filed for unemployment during the week ending Oct. 4 dropped from its seven-year high by 20,000 to a seasonally adjusted number of 478,000 the Labor Department reported Thursday.

But this is just a one time blip of good news, according to Esmael Adibi, director of Anderson Center Economic Research.

"Unfortunately  the economy is clearly in recession at the local and national level, and employment is a lagging indicator so it  will continue to get worse, we're not even in the middle of a recession, the next few quarters will be worse than previous quarters and the claims will continue to rise."

Claims remain elevated due to a struggling economy and the loss of jobs incurred because of Hurricane Gustav. Two weeks ago, 45,000 jobless claims were filed in Gustav-hit areas like Texas and Louisiana, but this week only 17,000 were filed.

The four week average of jobless claims rose to 482,500, the highest it’s been since October 2001.

The number of continuing claims for workers who have been drawing unemployment for a week or more rose by 56,000 to 3,659,000. This figure is the highest since 2003, and suggests that new jobs are difficult to come by.

Payroll for nonfarm workers has continued on its nine-straight-month decline, and another decline is expected in October.

A weak labor market also threatens household income and spending.

"Continuing claims will have a very negative toll on the economy, especially with the housing market," said Adibi. "The housing market so far this year  was experiencing weakness because of mortgage rate adjustments, but now the rest of economy is slowing down and the unemployment rate is high and rising and people are continue to lose jobs, so people who used to be able to pay their mortgage might be getting laid off, and wont be able to make the payments anymore causing even more problems."   

Traders were handed another batch of data later in the morning from The Commerce Department reporting wholesale inventories climbed a more-than-expected 0.8% in August to $445.39 billion.

The increase in inventories shows middlemen were stuck with a swelling of inventories as consumers tighten the purse strings and sales continue to slump. Analysts were expecting a climb of 0.5%.

The Commerce Department also adjusted July’s inventories number to 1.5% from 1.4%.