In the first week after Hurricane Sandy and with the fiscal cliff looming, claims for unemployment benefits surged by 78,000 last week to a new 1-1/2-year high, the Labor Department said Thursday .

The government blamed the surge in claims mainly on the superstorm, which caused increases in claims in New Jersey and Connecticut due to work stoppages. But the report, which wildly missed forecasts from economists -- who had already factored in the storm's impact -- also underscores continued trouble in the jobs market as businesses brace for the ominous year-end fiscal cliff.

The government said initial weekly jobless claims surged by 78,000 last week to 439,000, compared with expectations for a more modest rise to 375,000. That marked the highest level since April 2011.

The four-week moving average of claims, which aims to even out increasingly frequent volatility, climbed by 11,750 to 383,750.

The Labor Department also upwardly revised the prior week’s claims to 361,000 from 355,000.

“The upside surprise likely reflects a more significant temporary jump in filings in the East Coast regions affected by Hurricane Sandy than we had factored in,” Peter Newland of Barclays (BCS) wrote in a note.

Continuing claims, which are filed by those out of work for more than a week, soared by 171,000 to 3,334,000 in the week ended November 3. That leaves this measure of unemployment at levels unseen since July 2008, just prior to the start of the U.S. financial crisis.

Hurricane Sandy hammered the Northeast late last month, and was largely the cause of the surge in claims. Claims soared by 5,675 in New Jersey and hit industries most likely impacted by the massive storm: construction, accommodation and food service, transportation and warehousing and manufacturing.  

On the other hand, claims in New York dropped by 2,241 as state systems were unable to take claims due to power outages, the Labor Department said.  

Aside from the impact of Hurricane Sandy, business owners are grappling with serious tax uncertainty caused by the fiscal cliff, the $600 billion package of spending cuts and tax increases to take effect unless Congress acts before the end of the year.

The fiscal cliff has already taken a serious toll on the stock market as the Dow Jones Industrial Average has plummeted 675 points, or 5%, in since the day after the U.S. elections – the largest six-day slide in a year for the average.

Barclays said it expects the uptrend in weekly claims “ultimately will prove temporary.”

Earlier this month analysts at Nomura warned that claims in November were likely to be “highly volatile in the wake of Hurricane Sandy.” The report noted that “an examination of past natural disasters suggests that volatility in claims appears to be directly associated with the economic cost of the storm.”

For example, jobless claims soared by 96,000 in the week after Hurricane Katrina in 2005 but then dropped by 65,000 in the third week after landfall.

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