WASHINGTON (MarketWatch) -- First-time filings for unemployment benefits shot up to their highest level since July 1992 last week, rising 27,000 to a seasonally adjusted 542,000 and punctuating the struggling state of the U.S. labor market, government data showed Thursday.

Meanwhile, the number of people receiving benefits rose to 4.01 million in the week ending Nov. 8, the highest level in 26 years.

"This is a horribly weak report," wrote John Ryding and Conrad DeQuadros of RDQ Economics. Recent trends in initial claims are consistent with a staggering loss of 400,000 nonfarm payrolls, they said.

The four-week average of claims -- which smoothes out events like weather or strikes -- also climbed in the latest week, rising by 15,750 to 506,500, the government said. That was the highest since January 1983.

The insured unemployment rate increased to 3.0% from 2.9%.

The claims numbers are the latest gloomy indicator for the U.S. economy. They come as Senate Democrats are seeking to extend unemployment insurance for workers whose benefits have expired.

The House has passed the legislation, and a Senate vote could come as early as Thursday.

The Senate bill would take 60 votes to pass. President Bush has threatened to veto the bill, saying it's fiscally irresponsible.

Federal Reserve policy makers are expecting the economy to contract for as long as a year. There is a risk that the slowdown could persist even longer, according to edited minutes of a closed-door meeting of the Federal Open Market Committee on Oct. 28-29. See full story.

The FOMC now projects the unemployment rate will average between 6.3% and 6.5% at the end of this year and will average between 7.1% and 7.5% next year. Three months earlier, the FOMC had expected unemployment to remain below 6% throughout the period.

The jobless rate hit 6.5% in October.