New claims for unemployment benefits jump unexpectedly

The U.S. job market, barely treading water this year, is showing worrisome signs of weakening.

The Labor Department said Thursday that new applications for unemployment benefits unexpectedly rose to 500,000 last week, the highest level in nine months. It marked the third straight week of rising new jobless claims and added to other recent reports suggesting that layoffs are ticking higher even as new hiring remains sluggish.

The data, along with a separate report showing a falloff in manufacturing activity in August, reinforced concerns over the staying power of the economic recovery, unsettling investors. Stocks closed sharply lower, with the Dow Jones industrial average sliding 1.4% to close at 10,271.

President Obama, facing increasing pressure on the economy, referred to the latest increase in jobless claims as he pressed lawmakers to pass a jobs bill that would give small businesses tax relief and aid with loans.

“They need help. And if we want this economy to create more jobs more quickly, we need to help them,” he said before departing for an extended family vacation at Martha’s Vineyard.

Analysts said the jump in first-time unemployment claims reflected, in part, increasing layoffs of workers on state and local government payrolls. Some pointed to special factors such as a larger-than-usual number of military service discharges and the dismissal of many temporary U.S. census workers.

No matter how the numbers are sliced, “it’s nothing to celebrate,” said Sophia Koropeckyj, a labor economist at Moody’s Analytics, referring to Thursday’s jobless data. “One can safely say that today’s report suggests we’re going to see very weak August employment numbers.”

In July, the economy lost a net 131,000 jobs amid large layoffs of census employees and tepid hiring in the private sector.

Some economists said the August job numbers, to be reported on the Friday before Labor Day, will probably be even worse. More than 125,000 additional census workers have been let go since the July jobs data were tallied.

“I would say it’s a very slow trickle when it comes to a pickup in jobs,” said Deborah Russell, director of workforce issues at the AARP, which has held 32 job fairs in 19 states since March.

Kim Megonigal, chairman of Irvine-based Kimco Staffing Services, said that after growing in the first half of the year his business has been flat the last two months.

“I think there’s just too much uncertainty out there. Nobody’s doing anything,” he said.

Megonigal’s experience reflects the general trend of the broader economy, which has shown decelerating growth since late spring.

More evidence of that came Thursday from the Federal Reserve Bank of Philadelphia. Its index of manufacturing activity in the mid-Atlantic region unexpectedly contracted in August, with new orders and employment both showing a significant drop.

The Philadelphia Fed’s survey was considerably more downbeat than other Fed manufacturing reports this week, and it highlighted the dimming of a sector that had been the star of this recovery. A major factor behind the manufacturing slowdown is the waning of a rebuilding of inventories that were slashed during the recession.

Some analysts still expect manufacturing to continue growing at a solid pace in the coming months. In its new economic forecast released Thursday, the research group Manufacturers Alliance/MAPI projected that manufacturing production would grow 5.7% this year and 4.7% in 2011.

The group, however, sharply cut its forecast for manufacturing employment growth. It projected the factory sector to add 277,000 jobs in 2010 and 373,000 jobs next year, down from the 400,000 and 500,000, respectively, it forecast in its May report.

The U.S. manufacturing sector lost more than 2 million jobs in 2008 and 2009, but since January it has added 183,000 positions — accounting for 29% of the 630,000 net private-sector jobs created in the first seven months of this year.

In the jobless claims report Thursday, California and several states that reported increased applications noted layoffs in construction and manufacturing industries.

Overall, there were 500,000 first-time claims for unemployment benefits filed in the week ending Aug. 14, up 12,000 from the week before but down from 575,000 a year earlier.

The average weekly claims over the four weeks ended Aug. 14 rose by 8,000 to 482,500, the highest since December. The longer measurement is considered more reliable than the one-week tally.

The number of people continuing to receive benefits remained at about 4.5 million in early August. That’s roughly a third of the 15 million workers who are officially unemployed.