The U.S. government on Thursday released more details on the sinking state of the economy as it said new claims for unemployment benefits hit a 16-year high last week.

The Labour Department said first-time benefits claims surged to a seasonally adjusted 542,000 last week from 515,000 the previous week.

The claims figure was much worse than the 505,000 that economists had been expecting.

First-time claims have not been this high since July 1992, when the U.S. economy was trying to get out of recession.

The four-week average of claims painted an even worse picture, as they rose to 506,500, the highest in more than 25 years.

On Wednesday, the U.S. central bank cut its growth expectation for the economy. The Federal Reserve is now expecting anything from zero growth to expansion of just 0.3 per cent this year. For 2009, the Fed's prediction ranges from a contraction of 0.2 per cent all the way up to growth of 1.1 per cent.

The forecasts are down from the prediction the Fed made to the U.S. Congress in July.