Fate of U.S. Labor Market Hinges on New York as Claims Surge

A surprising surge in requests for unemployment benefits in the U.S. had New York written all over it.

Jobless claims rose by 20,000 to 294,000 in the first week of May, a more than one-year high and exceeding the highest forecast in a Bloomberg survey, a Labor Department report showed Thursday. The Empire State accounted for about 80 percent of the weekly advance before seasonal adjustment.

The concentration in New York pointed to something other than a weakening U.S. economy, with a late spring break at schools, a strike by workers at Verizon Communications Inc. and even payback from an unseasonably mild winter all being floated as possible reasons. A more accurate picture of dismissals across the U.S. rests with the less-volatile four-week claims average, which climbed by a more modest 10,250.

“This one piece of evidence isn't sufficient to make a judgment about the labor market,” said Thomas Simons, a money-market economist at Jefferies LLC in New York. “This is not evidence that there's a turn for the worse in the labor market. Conditions are still quite strong.”

For 62 consecutive weeks claims have been below the 300,000 level that economists say is typically consistent with an improving job market. That's the longest stretch since 1973.

Unemployment benefit applications in New York totaled 33,159 last week, almost double the number from the prior week and accounting for most of the 18,389 pickup in U.S. filings prior to seasonal adjustment. Stephen Stanley, chief economist at Amherst Pierpont, said the closing of schools for spring break played a big role.

Spring Break

Indeed, data over the last six years show spikes in New York state jobless claims during the spring recess, though they usually occur in April, rather than May, and subside in following weeks. While teachers are ineligible to receive unemployment insurance, non-educational personnel such as bus drivers, custodians and cafeteria workers do file.

The increase in claims last week was mainly due to filings from school bus drivers and food-service workers, New York's Department of Labor confirmed via email from Tiffany Portzer, the agency's director of press communications.

Of course, that also means the low national readings in prior weeks were probably giving an artificial signal of labor-market strength. Claims reached a four-decade low in mid-April when the seasonal adjustment would have typically expected the surge in applications from New York.

A second reason for the jump in applications is more complicated. Around 40,000 employees of Verizon walked off the job at the New York-based communications company on April 13. According to the New York Department of Labor's website, a worker who loses a job due to a labor dispute such as a strike may be eligible to collect benefits after 49 days.

Verizon workers would be able to collect benefits sooner if the company hires permanent replacement workers, the state's labor agency says. Additionally, the Communications Workers of American union's website encouraged members to file claims.

Figures provided by Verizon imply little impact from the striking workers. The company has hired between 500 and 1,000 "temporary" replacement workers, while union workers haven't been permanently replaced and are not being locked out of work, according to Rich Young, a Verizon spokesman.

--With assistance from Jordan Yadoo and Scott Moritz To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net. To contact the editors responsible for this story: Carlos Torres at ctorres2@bloomberg.net, Vince Golle