George W. Bush on Thursday bowed to Democratic pressure, agreeing to an extension in unemployment benefits after weekly jobless claims hit a 16-year high amid the deepening economic downturn.

The White House said the president would sign legislation under consideration in Congress to extend payments for up to 13 additional weeks to people whose unemployment benefits had run out.

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

Democrats had originally hoped that the extension in unemployment benefits could be part of a broader economic recovery package, including stimulus measures and emergency loans for the ailing car industry. That prospect has faded in recent days in the face of Republican opposition but Dana Perino, White House press secretary, said the president was willing to back more limited legislation extending support for the unemployed.

“The president is always concerned when anybody loses their job and wants to ensure that anybody who wants to work can find employment,” she said.

Her comments came after the Labor Department announced that claims for unemployment benefits rose last week to the highest level since July 1992.

More than 1.2m jobs have been lost this year and the unemployment rate is at a 14-year high of 6.5 per cent.

The House of Representatives has already passed legislation authorising an extension in benefits and the Senate was expected to vote on the proposal this week, possibly as early as Thursday night.

Under the proposed legislation, unemployed people would be entitled to at least seven additional weeks of payments on top of the 26 weeks of existing benefits. Payments would continue for a further six weeks in states with an unemployment rate above 6 per cent.

Without the legislation, Democrats say 1.1m people would have exhausted their unemployment benefits by the end of the year. Congress has extended insurance benefits seven times in the past half century during economic slumps.

New claims for unemployment benefits hit 542,000 in the week ended November 15, up 27,000 from the week before, seasonally adjusted data from the Labor Department showed yesterday. The worse-than-expected figure underlines how the credit crisis has spread rapidly through the US economy. Continuing claims for benefits reached 4.01m, up 109,000 from the week before and the highest level since 1982 when the US economy was in a deep downturn.

Economists are concerned that, with heightened fears emerging over financial companies and carmakers in the past week, the credit crisis shows no sign of dissipating. That suggests job losses are unlikely to be stemmed soon.

In other data, a survey this month by the Philadelphia Federal Reserve recorded the worst conditions in manufacturing since 1990. It also signalled the rising risk of deflation as a rising number of companies reported paying less for input products.