By Gwynn Guilford and Hannah Lang 

Worker filings for initial jobless claims jumped to nearly one million last week, indicating rising layoffs amid a surge in Covid-19 cases at the start of the year.

The number of applications for unemployment benefits, a proxy for layoffs, rose by 181,000 to 965,000 last week, the Labor Department said Thursday. That put initial jobless claims at their highest level since mid-August and well above the roughly 800,000 a week they have averaged in recent months.

The increase is another sign that the economic recovery is sputtering, as coronavirus infections hit record levels nationwide.

Economists surveyed by The Wall Street Journal expected the government to report that new unemployment claims, a proxy for layoffs, came in at a seasonally adjusted 800,000 last week.

The current level is far less than the peak of nearly seven million jobless claims filed in late March. However, workers are filing nearly four times more applications than they typically did in the first two months of 2020, and still higher than in any other recession on record.

"That's nowhere near what we saw in April fortunately. But it's not a pretty picture," said Beth Ann Bovino, U.S. chief economist for S&P Global Ratings. "We're stuck at a level that's four times where it should be."

The report added to the evidence that the rapid rise in Covid-19 cases and fresh business restrictions in some places are weighing on the labor market. Employers cut 140,000 jobs in December, marking the first decline since the pandemic hit the country last spring. Leisure and hospitality workers bore the brunt of the decline, as a nationwide surge in coronavirus infections forced many restaurants and bars to close or scale back operations. "The people who had gotten hurt the most are still getting hurt the most," Ms. Bovino said.

The recovery in the number of available jobs posted online reversed course toward the end of December, according to job-search site Indeed's measure of job-posting trends.

Other recent economic data suggest a broader economic slowdown under way. Small-business optimism fell sharply in December. Household spending declined for the first time in seven months in November, with household income slipping too. New- and existing-home sales fell in November from the previous month.

The U.S. seven-day moving average of new Covid-19 cases sat at 247,700 as of Tuesday, according to a Wall Street Journal analysis of Johns Hopkins University data -- down slightly from the all-time peak hit on Sunday. The U.S. averaged more than 3,340 deaths a day in the past week.

Seasonal quirks and the passage last month of a $900 billion Covid-19 relief bill could muddy the current claims picture.

The numbers of initial claims and those receiving state benefits typically pick up in the first week after the two-week period that spans Christmas and New Year holidays, said Elizabeth Pancotti, policy adviser at Employ America, a left-leaning advocacy group.

"Any decrease we saw over the last two weeks we should view as artificial, either because offices were closed [during the holidays] or states were trying to implement the new extension," she said, referring to the bill that President Trump signed Dec. 27. It added a $300-a-week supplement for those receiving unemployment benefits through March 14 and extended two federal pandemic programs that otherwise would have paid out their final benefits in December.

News of the relief package could also have contributed to an uptick in initial claims by encouraging additional workers to apply or previously eligible workers who exhausted their benefits to reapply.

Many individuals, though, are experiencing spells of unemployment so long that they have exhausted their benefits altogether.

Hunter Keegan, 27 years old, of Fairfax County, Va., said he lost his job as a corporate recruiter for a health-care firm last April. He immediately began applying for work in the greater D.C. area as well as in other parts of the country where the labor market seems to be faring better. Some of these led to interviews -- and he even received a few offers. All of those fell through, though. And in October, Mr. Keegan received his last unemployment check.

Mr. Keegan said he no longer has any idea of how long it might take him to find a job.

"I've been out of work for about eight months, and I need to get back into the workforce full-time," Mr. Keegan said, adding that he is paying for treatment of a chronic medical condition using installment plans.

Many economists anticipate a labor-market rebound, as vaccines are distributed more widely, spurring spending and hiring. Ms. Bovino expects that to happen in the second half of 2021 but warns that the labor market could well worsen in coming months. "It all depends on containing the virus, and that looks to me like an increasing struggle," she said.

Write to Gwynn Guilford at gwynn.guilford@wsj.com

(END) Dow Jones Newswires

January 14, 2021 09:05 ET (14:05 GMT)