Superstorm Sandy drove a surge in new claims for U.S. jobless benefits last week and hurt factory activity in the mid-Atlantic region in November, signs it could deal a substantial blow to economic growth in the fourth quarter.
Initial claims for state unemployment benefits rose 78,000 to a seasonally adjusted 439,000, the highest level since April 2011, the Labor Department said on Thursday.
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It was the biggest one-week jump since a spike caused by Hurricane Katrina in September 2005.
Because the storm's impact is expected to be temporary, the data gave few clues as to the underlying health of the U.S. economy. But it appears the short-term hit could be greater than economists previously thought.
"We will likely see a step back in job growth," said Ryan Sweet, senior economist at Moody's Analytics in West Chester, Pennsylvania. The U.S. jobs market has had a painfully slow recovery from the 2007-09 recession and the unemployment rate remains stuck near 8 percent.
The muddy economic picture left by the storm could make it difficult to gauge the economy's fundamental strength for several more weeks.
In addition to the storm, the economic recovery is laboring against the uncertainty over the path of U.S. budget policy.
U.S. economic growth is expected to slow sharply in the fourth quarter as businesses and consumers hold back on purchases due to fears of the so-called fiscal cliff, a Reuters poll showed on Thursday.
Absent action by lawmakers, Washington will slash the federal budget gap by roughly $600 billion next year with sharp spending cuts and big tax hikes that would likely push the economy back into recession. Europe's debt crisis is also weighing on U.S. growth.
Economists expect U.S. job growth to slow to an average 144,000 jobs per month over the final three months of the year from 174,000 in the third quarter.
Fiscal cliff fears and disappointing results from Wal-Mart Stores Inc pushed U.S. stocks down in choppy trade, while prices for U.S. government debt rose.
FACTORIES TAKE A HIT
An analyst from the Labor Department said several states from the mid-Atlantic and Northeast reported large increases in new filings for unemployment benefits last week due to Sandy, a mammoth storm that slammed into the East Coast in late October.
The storm left millions of homes and businesses without electricity, shut down public transportation and caused widespread damage in coastal communities.
Economists have said the storm could shave as much as half a percentage point from economic growth in the last three months of the year, but that should be made up early in 2013.
Retail sales data on Wednesday pointed to a softening in U.S. consumer spending early in the fourth quarter as Sandy slammed the brakes on automobile purchases last month.
Wal-Mart, the world's biggest retailer, reported quarterly sales below analysts' expectations, but said it was well-positioned for U.S. holiday sales.
"Current macroeconomic conditions continue to pressure our customers," Chief Financial Officer Charles Holley said. "The holiday season is predicted to be very competitive, but we are very well prepared to deliver on the value and low prices our customers expect."
Separately, data from the Philadelphia Federal Reserve Bank showed manufacturing in the mid-Atlantic unexpectedly contracted this month. The Philadelphia Fed's business activity index slumped to -10.7 from 5.7 the month before.
Any reading below zero indicates a decline in the region's manufacturing. The storm led firms in the region to reduce activity by about two days on average, the Philadelphia Fed said.
In New York state, which was also hit hard by Sandy, a gauge of manufacturing from the New York Federal Reserve Bank pointed to a fourth straight month of contraction in November.
The Labor Department said in another report that the Consumer Price Index edged up just 0.1 percent last month, with a rise in shelter costs offsetting a drop in gasoline prices.
A reading of so-called core prices, which strips out volatile food and energy costs, rose a trend-like 0.2 percent.
The data showed a generally stable rate of inflation, which economists said should give the Federal Reserve room to continue efforts to bolster the recovery.
"I wouldn't say that core CPI is worrying at all," said David Sloan, an economist at 4Cast in New York.
The price of shelter, which includes rent, rose 0.3 percent during the month, the most since 2008, and accounted for more than half of the increase in the CPI. Rents for primary residences rose 0.4 percent, which could suggest a strengthening in the economy is giving landlords more leverage to raise rents.
Gasoline prices fell 0.6 percent in October after climbing 7 percent the prior month. It was the first drop in gasoline prices since June. Higher costs at the pump have forced many American consumers to cut back on other spending.
In the 12 months to October consumer prices increased 2.2 percent, up a tenth of a point from September's reading. Core prices were up 2 percent, matching the 12-month reading from September.
(Reporting by Jason Lange; Additional reporting by Chris Reese, Edward Krudy and Ellen Freilich in New York; Editing by Neil Stempleman and Tim Ahmann)