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Jobless-Claims Jump Flashes U.S. Shutdown Warning: Economy

Photographer: Andrew Harrer/Bloomberg

A job seeker has her resume looked at during the Choice Career Fairs job fair in Arlington, Virginia. Close

A job seeker has her resume looked at during the Choice Career Fairs job fair in Arlington, Virginia.

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Photographer: Andrew Harrer/Bloomberg

A job seeker has her resume looked at during the Choice Career Fairs job fair in Arlington, Virginia.

Claims for U.S. jobless benefits jumped last week to the highest level in six months, providing the first statistical warning that the damage from the partial federal shutdown is starting to ripple through the economy.

While half the increase came from California as the state worked through a backlog following a switch in computer systems, another 15,000 reflected the furlough of non-federal workers from employers losing government business, a Labor Department spokesman said as the data was released to the press. Applications (INJCJC) for unemployment insurance benefits surged by 66,000 in the week ended Oct. 5 to 374,000, the most since late March, figures from the Labor Department showed today in Washington.

“The economic costs of a shutdown are going to increase the longer the shutdown occurs,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania and the second-best claims forecaster over the past two years, according to data compiled by Bloomberg. “If this drags along for the next couple of weeks, the economic toll will be even more significant.”

Shares surged today amid signs lawmakers were moving to reach agreement on increasing the nation’s debt ceiling to avoid a government default. Absent a deal, the possibility that federal agencies will need to slash spending once the borrowing limit is reached probably means hiring plans will be put on hold as business leaders prepare for an economic slump.

Shares Jump

The Standard & Poor’s 500 Index jumped 2.2 percent to 1,692.56 at close in New York, the biggest rally since January. The Obama administration endorsed a short-term in to the debt limit that would have no policy conditions attached, signaling support for a House Republican plan.

Other news today showed the world’s third-biggest economy was strengthening. Machinery orders in Japan jumped in August to the highest level since 2008.

A partial U.S. federal government shutdown lasting through the end of the week could cost the economy 0.2 percentage point in growth, according to the median estimate in a Bloomberg survey of economists issued today. The damage escalates to a 0.5-point loss if the shutdown carries through Oct. 25.

Last week’s surge in the number of jobless claims was the biggest since the aftermath of superstorm Sandy in November. The median forecast of 47 economists surveyed projected an increase to 311,000 from the prior week’s 308,000. Estimates ranged from claims of 304,000 to 340,000.

Diverging Views

Consumers for now aren’t letting the gridlock in Washington get them down, according to results of the weekly Bloomberg Consumer Comfort Index. The measure was little changed in the period ended Oct. 6.

While the government’s partial shutdown and the prospect of a default made Americans less optimistic about the economy, measures of personal finances and the buying climate improved, today’s report showed.

The divergence indicates views on the economy are more easily swayed by the rancor surrounding the political debate. Matters closer to home, on the other hand, including a resilient stock market and improving home values, are helping underpin sentiment, particularly for high-income consumers.

“Upper-end households, who are thriving in the current environment, remain confident,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. At the same time, if the government conflict continues, it “will likely put a dent in consumer sentiment and business confidence in coming weeks,” he said.

Data Delayed

While the claims data will continue to be released, the lapse in appropriations has delayed the Labor Department’s September employment report and other government data releases. Payrolls were expected to climb by 180,000 last month, based on the median forecast in a Bloomberg survey, from 169,000 in August. Initial jobless claims reflect weekly firings and typically wane before job growth can accelerate.

Private employers added 166,000 workers in September following a revised 159,000 rise in August that was smaller than initially estimated, according to figures released last week by the ADP Research Institute. The median forecast of 40 economists surveyed by Bloomberg called for an advance of 180,000.

“Claims are likely to be distorted for some time,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida. “Private firms are stepping back. Given all the uncertainty, they are unlikely to hire.”

The Labor Department’s claims reports in coming weeks won’t reflect furloughed federal workers. Those will be tallied in a separate category and will not influence the headline reading, though contractors’ dismissals will count.

Federal Contractors

Lockheed Martin Corp. (LMT), the top federal contractor, had planned to furlough 3,000 people, though it reduced furloughs by about 20 percent after the Pentagon said Oct. 5 most civilian employees sent home in the partial federal shutdown will be put back to work. Of the Lockheed employees still being furloughed, only 300 work on military programs.

“The Department of Defense’s decision will not eliminate the impact of the government shutdown on the company’s employees and the business,” Lockheed said in its statement.

Business owners may also worry that Congress won’t reach a timely deal on raising the debt limit before U.S. borrowing authority lapses around Oct. 17.

The Obama administration, global leaders and economists have warned that breaching the debt ceiling would have catastrophic consequences for the economy that would ripple across the globe.

“The effects of any failure to repay the debt would be felt right away, leading to potentially major disruptions in financial markets, both in the U.S. and abroad,” International Monetary Fund chief economist Olivier Blanchard said during a press conference this week.

To contact the reporters on this story: Jeanna Smialek in Washington at jsmialek1@bloomberg.net Victoria Stilwell in Washington at vstilwell1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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