The weak growth tone was also emphasized by other reports on Thursday showing a contraction in the Mid-Atlantic factory activity for a fifth straight month in September and a dip in a measure of future economic activity in August.

"I don't think the economy is going anywhere fast. The jobs market is still very difficult and manufacturing, which was a key pillar of the recovery is beginning to crack," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester Pennsylvania.

Editor's Note: See the Disturbing Charts: 50% Unemployment, 90% Stock Market Crash, 100% Inflation

Financial information firm Markit said its U.S. "flash," or preliminary, manufacturing Purchasing Managers Index stood at 51.5 in September, unchanged from August. A reading above 50 indicates expansion.

The index averaged 51.5 in the third quarter, below the 54.2 registered between April and June, for its worst showing since the third quarter of 2009. At 51.2, the output component was the lowest since September 2009.

"With output growing at the slowest pace since the recovery began, the manufacturing sector may have even acted as a slight drag on the economy in the third quarter," Markit chief economist Chris Williamson said.

A separate report from the U.S. Labor Department showed initial claims for state unemployment aid edged down just 3,000 to a seasonally adjusted 382,000 last week

Economists had attributed a spike in claims in the prior week to Tropical Storm Isaac, but the minimal improvement in the latest reading pointed to fundamental weakness.

The four-week moving average for new claims, a better measure of labor market trends, rose 2,000 to 377,750 — the highest level since June. It was the fifth consecutive weekly increase in the measure.

"Businesses clearly remain reluctant to aggressively boost their workforces amid the current risks associated with the soft economy and significant uncertainty surrounding fiscal policy next year," said Jim Baird, partner at Plante Moran Financial Advisors in Kalamazoo, Michigan.

The economic data and signs of increasing economic weakness in China and Europe pushed U.S. stocks lower. The dollar gained versus a basket of currencies and prices for U.S. government securities rose.

JOB GROWTH RUT

In a third report, the Philadelphia Federal Reserve Bank said its business activity index was at minus 1.9 this month compared with minus 7.1 in August.

While new orders rebounded for the first time since April, shipments extended their slide and there was little improvement in the measure of regional factory jobs.

Separately, the Conference Board's Leading Economic Index dipped 0.1 percent in August after rising 0.5 percent in July.

The report on jobless claims covered the period for the government's September nonfarm payrolls survey. Claims have risen 8,000 between the August and September survey periods, suggesting modest job growth this month.

However, Markit's survey of purchasing managers showed hiring in the factory sector strengthened a bit, with the employment sub-index edging up to 52.7 from 52.4.

U.S. employers added only 96,000 jobs last month, a step down from July's 141,000 count. While the unemployment rate dropped to 8.1 percent in August from 8.3 percent, it was because many Americans gave up the search for work.

Lackluster labor market conditions prompted the Federal Reserve last week to launch an aggressive stimulus program. It vowed to buy $40 billion worth of mortgage-backed securities each month until it sees a sustained upturn on the jobs front.

Boston Federal Reserve Bank President Eric Rosengren, one of the more vocal "doves" at the central bank, said the new stimulus program was need to "avoid a prolonged economic stagnation."

The unemployment rate has been stuck above 8 percent for more than three years, the first time this has happened since the Great Depression.

The number of people still receiving jobless benefits under regular state programs after an initial week of aid fell 32,000 to 3.27 million in the week ended Sept. 8, the claims report showed. That was the lowest level since mid-May and most likely reflected people exhausting their benefits.

Editor's Note: See the Disturbing Charts: 50% Unemployment, 90% Stock Market Crash, 100% Inflation