© Photograph: Mike Groll/AP
Claims above 400,000 signal a deteriorating jobs market
Jobless claims increased by 38,000 to 368,000 last week - more than forecasters expected and the largest rise since November

The number of people filing their first claim for unemployment benefits in the US has risen by more than forecasters expected.

Initial jobless claims increased by 38,000 to a seasonally adjusted 368,000 in the week ended January 26, the Labor Department said Thursday. The rise was the largest since early November, when claims spiked in the wake of Hurricane Sandy.

The rise was higher than the 365,000 figure forecast by economists, but the jobs market still appears to be slowly recovering. Claims above 400,000 signal a deteriorating jobs market. The latest weekly figures come ahead of Friday's monthly non-farm figures, which give a far more comprehensive picture of the US jobs market.

On Wednesday, the Commerce Department said the US economy went into reverse in the last quarter of 2012, the first decline since the recession of 2009. The fall was driven by deep cuts in government spending, including a 22.2% cut in defense expenditure, the largest since the end of the Vietnam war.

The US's gross domestic product shrank 0.1% in the final months of 2013 as businesses cut back on inventories and Washington argued over the fiscal cliff.

Investors will be watching carefully on Friday to see how the contraction plays out in the still weak jobs market. More cuts to government spending are expected in March as the US attempts to tackle its budget problems.

Economists are predicting the US to have added 150-170,000 new jobs in January. The US added 155,000 in December.

Earlier this week, payroll processor ADP and forecaster Moody's said the private sector added 192,000 new jobs in January, higher than expected. But the latest weekly figures and the GDP report suggest government cuts may affect the larger picture.

Dan Greenhaus, the chief global strategist at BTIG, said the latest weekly figures were in the "normal range" given the weak but positive growth in the jobs market.

"Over time, job growth and GDP tell the same story. The economy is in recovery; it's not growing much, although it's better than the GDP report would suggest. We are adding jobs, just not at the levels we are used to," he said.