Jobless claims soar near 7-year high
First economic report since financial meltdown shows initial unemployment claims rose by 7%, boosted by Hurricanes Gustav and Ike.
NEW YORK (CNNMoney.com) -- In the first economic reading from the period since the Wall Street crisis erupted, a government report Thursday showed initial unemployment claims rose last week much more than expected.
According to a study by the Department of Labor, initial filings for state jobless benefits increased by a seasonally adjusted 32,000 to 493,000 in the third week of September. It was the highest number of weekly claims since Sept. 29, 2001, when unemployment soared in the wake of the Sept. 11 terrorist attacks.
The consensus estimate of economists surveyed by Briefing.com was 450,000.
"The labor market is very weak," said Mark Vitner, an economist for Wachovia. "Layoffs have ticked up for the last two months, and there has been a slowdown in hiring, so we haven't been able to absorb new entrants into the workforce."
The Labor Department said about 50,000 of the new claims were due to the effects of Hurricanes Gustav and Ike. There were 18,400 more claims from the week before in Louisiana alone, and Texas added 1,200.
That helped boost the four-week moving average of new jobless claims by 16,000 from last week to 462,500. A level at or above 400,000 for the four-week average has also been present throughout the last two recessions.
In all, there were 12 states that reported at least a 1,000-claim increase from the prior week. New York, which is expected to continue to be hard-hit by the financial crisis on Wall Street, was among the dozen.
"This isn't just related to the crisis on Wall Street," Vitner said. "If we fixed the credit markets, we'd still be left with a very weak U.S. economy."
Falling home prices, sluggish income growth, weak consumer spending and rising inflation all have created a weak job environment. That led the government to extend unemployment benefits to claim seekers in June.
Continued unemployment insurance claims from those already receiving benefits rose in the week ended Sept. 13 - the most recent week available - to 3.54 million, up 63,000 from the previous week. The four-week moving average for continued claims rose by 28,250 to 3.49 million.
Earlier this month, the government reported that there were 84,000 jobs lost in August, bringing to 605,000 the number of jobs cut from payrolls by U.S. employers in the first eight months of the year.
The unemployment rate surged to 6.1% last month, a nearly five-year high and up from 5.7% in July. In the last recession, unemployment reached a high of 6.3%.
"Without a doubt, we'll blow right past that," Vitner said.
With last week's demise of Lehman Brothers, Bank of America's (BAC, Fortune 500) takeover of Merrill Lynch (MER, Fortune 500) and government bailout of American International Group (AIG, Fortune 500), even more job losses are expected, especially from the financial sector.