Unemployment claims jump to 368,000

Christopher S. Rugaber, Associated Press | AP

WASHINGTON (AP) — The number of Americans seeking unemployment benefits rose sharply last week but remained at a level consistent with moderate hiring.

Weekly applications jumped 38,000 to a seasonally adjusted 368,000, the Labor Department said Thursday. The increase comes after applications plummeted the previous two weeks to five-year lows.

The volatility reflects the government's difficulty adjusting the data to account for layoffs after the holiday shopping season. Job cuts typically spike the second week in January as retailers dismiss temporary employees hired for the winter holidays. Layoffs then fall in the second half of the month.

The department tries to adjust for such fluctuations but the January figures can still be volatile. The four-week average, a less volatile measure, ticked up to 352,000, just above a four-year low.

On Friday, the government is scheduled to issue its January jobs report. Analysts forecast that it will show employers added 155,000 jobs, the same as in December. The unemployment rate is expected to remain at 7.8% for a third straight month.

That's consistent with the number of people seeking unemployment aid. Applications fluctuated between 360,000 and 390,000 most of last year and employers added an average of 153,000 jobs a month.

That's just been enough to slowly push down the unemployment rate, which fell 0.7 percentage points last year to 7.8%.

Steady hiring is needed to resume economic growth. The government said Wednesday that the economy shrank at an annual rate of 0.1% in the October-December quarter, hurt by a sharp cut in defense spending, fewer exports and sluggish growth in company stockpiles.

The contraction points to what is likely to be the biggest headwind for the economy this year: sharp government spending cuts and budget fights.

The economy will likely expand in the current quarter and is forecast to grow around 2% this year as strength in areas like housing and auto sales could partly offset government cutbacks. But looming, across-the-board spending cuts, set to take effect March 1, would weaken a still-precarious recovery.

Two key drivers of growth improved last quarter. Consumer spending, which accounts for 70% of economic activity, increased at a faster pace and businesses invested more in equipment and software.

Homebuilders, meanwhile, are stepping up construction to meet rising demand. That could create more construction jobs.

Home prices are rising steadily. That tends to make Americans feel wealthier and more likely to spend. Housing could add as much as 1%age point to economic growth this year, some economists estimate.

And auto sales reached their highest level in five years in 2012. That's boosting production and hiring at U.S. automakers and their suppliers.