Initial claims for unemployment benefits in the United States soared to 406k in the week ending July 19, the highest level since March, according to the Department of Labor on Thursday. Economists said July data has been volatile, but the latest data is a reliable indicator of weakness in the jobs market.

Sal Guatieri, senior economist at BMO Capital Markets, said it was only a matter of time before jobless claims bounced up to elevated levels following two weeks of noisy data. He said the previous data was likely an aberration based on the retooling of the auto sector and Thursday's data is a better gauge of what's going on in the economy.

The 34k rise in initial claims follows two weeks of lower-than-expected figures. Prior to that, claims had been above 380k for four consecutive weeks.



Ian Shepherdson, chief U.S. economist at HFE, said the underlying trend is in "recession territory" and the next few weeks should revert to that trend, with weekly claims between 390k and 400k.

"Looking ahead, that trend should rise gradually, signalling a further deterioration in the payroll numbers and higher unemployment," he added.

Continuing claims fell back 9k to 3.107 million in the week ending July 12, against expectations they would rise to 3.160 million.

Continuing claims have now been above the three-million mark for nearly three months. The four-week moving average is now 3.134 million.

Charmaine Buskas, senior economics strategist, said, "More people are being laid off and there it is still taking a while for those who are unemployed to find work."

RBC's TJ Marta added that "the spike in [initial] claims appears due less to seasonal volatility and more to economic slowdown." He implied that trend will continue as the bonus spending from the tax rebates continues to wear off.

By Patrick McGee and edited by Nancy Girgis