Claims for unemployment benefits in the U.S. rose to their highest level since March 2002 with 455k initial claims reported in the week ending Aug. 2, but economists say new rules that make it easier to file a claim is putting upward pressure on the figures.

"The larger than expected rise is not a complete shock," said TD Securities economics strategist Charmaine Buskas. "The labor department did recently announce a 13 week extension to the benefits period and this has clearly caused a huge influx of re-filers."

Ian Shepherdson, chief U.S. economist at HFE, added, "These data look alarming but they have been lifted by people claiming for extended benefits but proving eligible to make new claims."



Shepherdson said the initial claims figures are "more or less useless as a guide to real pace of gross lay-offs" until information reveals what kind of distortion is in these numbers.

"The labor market is weak, no doubt about that, but just how weak it is right now is anyone's guess," he said.

Initial claims were at their highest level since April 2003 in last week's report, which stand unrevised at 448k. Forecasts were for initial claims to fall to 425k this week.

"Though it is difficult to interpret these data due to the regulatory changes, we believe the underlying trend is consistent with accelerating job losses, which are likely to materialize in the second half of 2008," Buskas said.

This week's figure is far above the four-week moving average for initial claims, which is now 420k, marking the first time since 2003 that the moving average has been over the 400k threshold. A trend of initial claims above the 400k mark is often associated with recessionary levels.

Continuing claims - which economists say may offer a more reliable guide to the labor market - rose to 3.311 million for the week ending July 26.

This is the 13th consecutive week that the continuing claims have been above the 3 million mark. The four-week moving average is now 3.201 million, up from the moving average of 3.174 million in the previous week.

"It is clearly taking much longer for those who are unemployed to find employment as the continuing claims remain on a strong upward trend," Buskas added.

T.J. Marta, fixed income strategist at RBC Capital Markets, added, "The deterioration is not the rapid implosion of past recessions, but the weakness is spreading more widely throughout the economy and will weigh on consumers, especially now that the tax rebate spending is behind us."

Prior to the release, economists from RDQ Economics said, "The extension of unemployment benefits due to the Emergency Unemployment Compensation Program boosted initial jobless claims last week and will likely result in claims remaining elevated for some time."

By Patrick McGee and edited by Stephen Huebl