The faltering economy and tight credit have forced companies to cut back, and as the job market shrinks, consumer spending may dwindle, too.

All that spells potentially more trouble for the country later this year as the bracing tonic of the government's tax rebates disappears.

''Consumers will be very tight fisted in the coming months,'' predicted Richard Yamarone, economist at Argus Research. ''Nothing shuts down the consumer - and the economy - like the loss of a job.''

New applications filed for unemployment benefits rose last week by a seasonally adjusted 7,000 to 455,000, the department said in its weekly report. That was the most since late March 2002, when the job market was struggling mightily to get back on its feet after the 2001 recession.

A program to locate people eligible for jobless benefits played a role in last week's increase, a department analyst said. The latest snapshot of layoff filings was worse than economists expected. They were forecasting new claims to drop to around 430,000.

The data disappointed Wall Street. The Dow Jones industrials tumbled 224.64 points to close at 11,431.43.

Consumers - fortified by rebate checks from the federal government - boosted their borrowing at a 6.7 percent pace June, the most since November, the Federal Reserve reported.

With the benefits of their stimulus checks dried up, Americans are focusing even more on necessities like detergent and milk. That's creating big problems for apparel chains at the malls as the important back-to-school shopping season gets under way.

''Most kids will be returning to school in last year's duds,'' Lazard Capital Markets analyst Todd Slater wrote in a report after seeing the July results from apparel retailers.

Sales reports for July from the nation's retailers show a widening gap between low-price operators and fashion chains, and analysts say the next couple of months will be critical for clothing stores that are on the cusp.

But discounters such as Wal-Mart Stores Inc. will have its challenges as well.

The world's largest retailer, whose July sales results were slightly below Wall Street estimates, said that it's seeing customers increasingly unable to stretch their dollars to the next payday. It also predicted that August's sales pace would be slower than July.

''The consumer is taking the mindset that, if I don't need it today then I am not going to buy it,'' said Patricia Walker, a partner in the consulting firm Accenture's retail practice. ''Department stores are going to have to have the right incentives to get customers into the store.''

Another report Thursday showed a measurement of pending home sales rose in June, a rare piece of positive news for the beleaguered market.

The National Association of Realtors' seasonally adjusted index of pending sales for existing homes rose 5.3 percent to 89 from May's reading, which was revised downward to 84.5 from an earlier reading of 84.7.

The June index was 12 percent below year-ago levels.

Home sales are considered pending when the seller has accepted an offer, but the deal has not yet closed. Typically there is a one-to two-month lag before a sale is completed.

Last month, the realty group said completed sales of existing homes fell more sharply than expected in June, pushing activity down to the lowest level in more than a decade. Many analysts predict home prices will keep falling until at least next spring as tighter credit, a weaker job market and rising foreclosures scare potential buyers away.

Still, the NAR predicts a package of housing legislation signed by President Bush last week - particularly a $7,500 tax credit for first-time homebuyers - will aid a recovery.