Jobless Claims Hit a Nine-Month High of 500,000

This time in August is called the dog days, but as far as the U.S. job market is concerned, it's more like the bear days. Initial jobless claims unexpectedly rose by 12,000 to 500,000 last week -- their highest level since November 2009 -- the U.S. Labor Department announced Thursday.

A Bloomberg survey had expected initial jobless claims to fall to 480,000 from the previous week's revised total of 488,000.

In addition, the four-week moving average rose by 8,000 to 482,500. Economists emphasize the more-telling four-week moving average because it smooths out anomalies due to holidays, strikes and weather-related layoffs. Continuing claims, however, dipped 13,000 to 4.48 million.

A year ago, initial jobless claims totaled 575,000, the four-week moving average was 567,250 and continuing claims totaled 6.13 million.

Jobless claims are going the wrong way: They need to drop below 400,000 during the next two quarters to give economists and investors confidence that commercial activity is increasing at a pace that prompts most companies to curtail layoffs and resume hiring. During an adequate expansion, jobless claims can fall much lower. During the 2002-2007 expansion, they fell below 370,000 for more than two years. And during the Roaring 90s, jobless claims basically remained below 350,000 for more than five years.

States also reported 4.75 million people claiming Emergency Unemployment Compensation benefits for the week ending July 31, the latest week for which data are available, an increase of 260,105 from the prior week.

The highest insured unemployment rates for that week were Puerto Rico, 6.7%; Pennsylvania, 4.8%; New Jersey, 4.6%; Oregon, 4.6%; and California, 4.5%.

In sum, this week's jobless claims report serves as another data point regarding the U.S. labor market. True, continuing claims have dropped substantially, by about 28%, in the past year. But Emergency Unemployment Claims -- which were instituted to backstop Americans whose continuing claims benefit have expired -- are high. And now, initial jobless claims have risen back to the 500,000 level.

The latter suggests that companies this summer increased layoffs --- just the opposite of what the U.S. economy needs to lower its high, 9.5% unemployment rate. If the rise in initial jobless claims persists into the fall, that would likely decrease demand in the economy, reducing retail sales, corporate revenue and, most likely, U.S. GDP growth in the third quarter.