Jobless claims hit highest level in a year. What’s going on?

An increase in unemployment applications is often seen as a proxy for layoffs. But economists argue that it is too early to be concerned, saying that the labor market is still strong.

The number of Americans applying for unemployment benefits unexpectedly spiked this past week – to the highest level since February 2015.

Initial jobless claims, or claims filed by new jobless workers for unemployment benefits, increased 20,000 to a seasonally adjusted 294,000, in the week that ended May 7. And the four-week average, which is considered a less-volatile measure, rose by 10,250 to 268,250, the highest level in almost three months, the Labor Department reported Thursday. Some economists polled by Reuters had forecast that the initial claims would slip to 270,000.

The number of people still receiving benefits after an initial week of aid also increased by 37,000 to 2.16 million in the week that ended April 30. But the continuing claims, or the four-week moving average, fell 3,750 to 2.14 million, the lowest since November 2000.

The report comes a week after the Labor Department released data showing that employers added 160,000 jobs in April, the lowest since last September, raising concerns that the job market has softened in response to the slowdown in the economy in the recent months.

An increase in unemployment applications is usually seen as a proxy for an increase in firings and layoffs.

But there is no reason to panic, some economists say, arguing that there are other factors that could have influenced the spike, including the April 13 strike by Verizon workers.

The Verizon strike saw about 40,000 workers across the East Coast walk off their jobs at the New York-based communications company. As The Christian Science Monitor reported, the workers were protesting an eight-month impasse with the company over their contracts.

If a worker loses a job due to a labor dispute, such as a strike or any other other industrial controversy, he/she may be eligible for unemployment insurance benefits for up to 49 days, according to the New York Department of Labor’s website.

"We have to look past the noise in the latest jobless claims number because it was likely influenced by the Verizon strike. The broader underlying trend in claims remains very constructive," Jacob Oubina, a senior US economist at RBC Capital Markets in New York, told Reuters.

And others say that it is too early to be concerned, pointing out that the overall labor market still appears healthy.

The US unemployment rate has remained at 5 percent - or better - for the past five months. Despite the jobless claims spike, the number of jobless claims remained below 300,000 – a threshold associated with a healthy labor market. And it marks the 62nd consecutive week that the claims have remained below 300,000, the longest streak since 1973.

“The odds that the labor market is falling apart and that layoffs are accelerating rapidly are extremely slim,” Stephen Stanley, the chief economist for Amherst Pierpont Securities, told his clients in an email, The Wall Street Journal reported. “There is little to no indication that labor demand [is] weakening.”