Unemployment claims surge, as jobs outlook sours

Unemployment claims moved above this year's average, mirroring a gloomier job outlook from Ben Bernanke.

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    A scene at the JobTrain employment office in Menlo Park, Calif., July 20. Unemployment claims surged to 464,000, the Labor Department reported Thursday, adding to the gloomy jobs outlook.
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America's job machine is stuck in neutral. And that's a worrying sign.

The number of Americans signing up for first-time unemployment benefits – a gauge of layoffs – surged to 464,000 last week, the Labor Department reported Thursday. That was higher than a consensus of economists expected and slightly above the average for the year.

With first-time claims staying stubbornly high, it's unlikely that unemployment will come down quickly. If unemployed Americans don't return to work, they can't spend, which slows the recovery.

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There's an outside chance that it stops recovery altogether.

"Initial unemployment claims hovering near the 450K mark have historically been consistent with weak labor market conditions characterized by 100K or greater declines in nonfarm payrolls," says Joshua Shapiro, an economist with New York economic consulting firm MFR, in a written analysis.

Yet, the government's official employment numbers have been showing slowly rising private-sector employment. "So, either the long-standing relationship between jobless claims and payroll employment has broken down, or the payroll figures are being overstated," Mr. Shapiro writes. "Our bet is on overstatement."

Even if the numbers aren't being overstated, the outlook for job growth is weak. At the end of 2012, the United States will still be struggling with an unemployment rate between 7 and 7.5 percent, Fed Chairman Ben Bernanke forecast in Senate testimony Wednesday. And that may be optimistic.

"Most participants [in the Fed's policymaking committee] viewed uncertainty about the outlook for growth and unemployment as greater than normal, and the majority saw the risks to growth as weighted to the downside," Mr. Bernanke said.

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