Superstorm boosts jobless claims, hits factories

Claims rise 78,000 – biggest 1-week jump since hurricane Katrina in 2005
By Jason Lange
|hrreporter.com|Last Updated: 11/16/2012

WASHINGTON (Reuters) — Superstorm Sandy drove a surge in new claims for jobless benefits last week and hurt factory activity in the mid-Atlantic region of the United States in November, signs it could deal a substantial blow to economic growth in the fourth quarter.

Initial claims for state unemployment benefits rose 78,000 to a seasonally adjusted 439,000, the highest level since April 2011, the U.S. Labor Department said.

It was the biggest one-week jump since a spike caused by Hurricane Katrina in September 2005.

Because the storm's impact is expected to be temporary, the data gave few clues as to the underlying health of the economy. But it appears the short-term hit could be greater than economists previously thought.

"We will likely see a step back in job growth," said Ryan Sweet, senior economist at Moody's Analytics in West Chester, Pa. The jobs market has had a painfully slow recovery from the 2007-09 recession and the unemployment rate remains stuck near eight per cent.

The muddy economic picture left by the storm could make it difficult to gauge the economy's fundamental strength for several more weeks.

In addition to the storm, the economic recovery is labouring against the uncertainty over the path of budget policy.

Economic growth is expected to slow sharply in the fourth quarter as businesses and consumers hold back on purchases due to fears of the so-called fiscal cliff, a Reuters poll showed.

Absent action by lawmakers, Washington will slash the federal budget gap by roughly $600 billion next year with sharp spending cuts and big tax hikes that would likely push the economy back into recession. Europe's debt crisis is also weighing on U.S. growth.

Economists expect job growth to slow to an average 144,000 jobs per month over the final three months of the year from 174,000 in the third quarter.

Fiscal cliff fears and disappointing results from Walmart Stores pushed stocks down in choppy trade, while prices for government debt rose.

Factories take a hit

An analyst from the U.S. Labor Department said several states from the mid-Atlantic and Northeast reported large increases in new filings for unemployment benefits last week due to Sandy, a mammoth storm that slammed into the East Coast in late October.

The storm left millions of homes and businesses without electricity, shut down public transportation and caused widespread damage in coastal communities.

Economists have said the storm could shave as much as one-half a percentage point from economic growth in the last three months of the year, but that should be made up early in 2013.

Recent retail sales data pointed to a softening in consumer spending early in the fourth quarter as Sandy slammed the brakes on automobile purchases last month.

Walmart, the world's biggest retailer, reported quarterly sales below analysts' expectations, but said it was well-positioned for holiday sales.

"Current macroeconomic conditions continue to pressure our customers," CFO Charles Holley said. "The holiday season is predicted to be very competitive, but we are very well prepared to deliver on the value and low prices our customers expect."

Separately, data from the Philadelphia Federal Reserve Bank showed manufacturing in the mid-Atlantic unexpectedly contracted this month. The Philadelphia Fed's business activity index slumped to -10.7 from 5.7 the month before.

Any reading below zero indicates a decline in the region's manufacturing. The storm led firms in the region to reduce activity by about two days on average, the Philadelphia Fed said.

In New York state, which was also hit hard by Sandy, a gauge of manufacturing from the New York Federal Reserve Bank pointed to a fourth straight month of contraction in November.

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