The labor market showed signs of further softening Thursday, with jobless claims surging above 500,000 and remaining well above historic recessionary levels.

The Labor Department says the number of new jobless claims were up 32,000 to 516,000 in the latest week. Economists polled by Thomson Reuters were expecting initial jobless claims to hit 484,000.  Continuing claims, which are considered an indirect measure of how difficult is to find a job, were also higher, gaining 65,000 to 3.9 million.

The four-week moving average for initial jobless claims, which helps mitigate short-run volatility, was up to 491,000 from a revised 477,750 in the previous week.  This is the highest level in 17 years, and is well above the 414,000 averaged during the 2001 recession. 

Economists say these changes could foreshadow further deterioration in payroll jobs, as tracked by the widely followed monthly employment situation report released by the Bureau of Labor Statistics.  The October reading showed the unemployment rate jumping to a 14-year high of 6.5%, but these data, taken together with other recently released metrics, suggest the number could head higher.  

"The elevated level of claims suggest that large payroll declines will again [be] reported in the November employment report," JPMorgan Chase Economist Abiel Reinhart wrote in a research note. 

According to the Bush Administration, fixing the ailing credit markets is the best way to revive the labor market. 

"The best thing we can do for economy right now is to fix the problems we have in the credit markets," said White House Deputy Press Secretary Scott Stanzel. "Addressing those challenges will put us back on the path to job creation and help those Americans who've lost jobs as a result of this credit crunch."