The number of Americans filing new claims for jobless benefits spiked last week, reversing a sharp decline in the prior week but still pointing to a labor market that is slowly healing.
Other data on Thursday showed a modest rebound in factory activity in the U.S. mid-Atlantic region.
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Initial claims for state unemployment benefits rose 46,000 last week to a seasonally adjusted 388,000, the Labor Department said.
Despite the spike, a four-week moving average that smoothes out weekly volatility was down from a month earlier, suggesting the lackluster job market recovery remains on track.
"Improvement in the labor market will continue to be fitful and slow," said Joseph Trevisani, a market strategist at Worldwide Markets in Woodcliff Lake, New Jersey.
The economy has recently shown signs of modest strength, with the unemployment rate falling to 7.8 percent in September and retail sales pointing to a pick-up in consumer spending.
A gauge of future economy activity rebounded in September to post its largest gain in seven months, the Conference Board said in a separate report.
Stock prices were down following the jobless claims data, which fell short of analysts' expectations, while yields on U.S. Treasury debt fell.
Within the jobless claims report, the four-week moving average of new claims rose 750 last week to 365,500. A month ago that figure stood at 378,500.
The government last week reported claims fell an unusually large 30,000 in the October 6 week to reach the lowest level in more than four years. But a Labor Department official said it appeared that state-level administrative issues were distorting the data at the start of October.
The government adjusts its jobless claims figures to take into account regular seasonal swings. Claims usually increase at the beginning of a quarter, but one state appears to be following a different reporting pattern than normal, which led to the wild fluctuations recently, the official said.
The official declined to name the state, although the Labor Department said that California was the only state in the week ending October 6 to report a decrease in claims of more than 1,000.
The distortions make it hard to assess the degree to which the claims data signal an improvement in hiring in October.
Last week was the same period used by the Labor Department to survey employers and calculate how many workers were added to payrolls in October. The drop in the four-week average from a month ago suggests hiring picked up.
"It does look like the labor market is improving at least in that respect," said Pierre Ellis, an economist at Decision Economics in New York.
Separately, the Philadelphia Federal Reserve Bank said its business activity index rose to 5.7 in October from minus 1.9 the month before, snapping five months of negative readings that pointed to contraction. The October reading topped economists' expectations for a gain to 1, according to a Reuters poll.
(Additional reporting by Ellen Freilich in New York; Editing by Andrea Ricci)