Reaction to jobless claims surging in latest week

NEW YORK (Reuters) - The number of workers filing new claims for jobless aid jumped by a much larger-than-expected 69,000 last week to the highest level in over two years, government data on Thursday showed, but the numbers were likely skewed by the timing of a public holiday.

KEY POINTS: * The Labor Department said that initial claims for state insurance benefit totaled 375,000 in the week ending January 26, the highest reading since October 2005, when claims reached 376,000. * It was the largest weekly increase since September 2005, when claims had mounted by 95,000, the Labor Department said. * Economists surveyed by Reuters had forecast 315,000 claims last week following an upwardly revised 306,000 the week before, previously reported at 301,000 claims.

COMMENTS:

IAN SHEPHERDSON, CHIEF U.S. ECONOMIST, HIGH FREQUENCY ECONOMICS, VALHALLA, NEW YORK:

JOBLESS: "Claims have been depressed by two separate seasonal issues in recent weeks. First was the usual turn-of-the-year noise, but then last week the later-than-usual Martin Luther King holiday affected the numbers. The holiday was a week later than in 2007, and there is a consistent pattern of seasonal adjustment problems when federal holidays shift in this way. We think the underlying trend in claims is about 350K but the drop in the ISM means it is set to rise further. In short, there is nothing in the argument that the dip in claims late Dec/early Jan is a sign that the labor market is OK really. It's not; look at today's Monster index."

PERSONAL SPENDING: "The details show real spending softer everywhere in Dec, with durables -- mostly autos -- down 0.3%, non-durables down 0.2% and services up only 0.1%, well below the underlying trend. Clear evidence of the pressure on consumers' finances, and the chain store numbers for Jan say the situation has worsened. Expect 1-1/2% or less for Q1 real spending. Elsewhere today, the Q4 ECI was reported up 0.8%, as expected."

PIERRE ELLIS, SENIOR ECONOMIST, DECISION ECONOMICS, NEW YORK:

"The huge increase in new jobless claims in the most recent week probably resulted from a difficult seasonal adjustment. Given the very low numbers from the previous two weeks, the running average is still relatively low. There does seem to be a clear improvement in January compared to December. The most recent jump should not be read as a sudden downturn in the job market."

DOUG ROBERTS, CHIEF INVESTMENT STRATEGIST, CHANNEL CAPITAL RESEARCH, SHREWSBURY, NEW JERSEY:

"The Fed will continue to cut... this is the first time you're seeing the magnitude of unemployment and a recession."

"Unemployment is ticking up. (Bernanke) can't afford to get behind the curve... The Fed had to get ahead of this and will take (interest rates) down to 2 percent.

"Unemployment is the 900-pound gorilla, and what the Fed looks at.

KURT KARL, HEAD OF ECONOMIC RESEARCH, SWISS RE, NEW YORK:

JOBLESS: "This what we have been worried about all along -- up until the previous week they looked so great compared to the employment numbers. People were not hiring but not laying off. So this is the bad news that reconciles the two numbers."

PCE: "It was about what we expected on the real consumption expenditures, it just wasn't a good month for retailers. Inflation was quite high in December, and that is part of the problem, you see that the current dollar disappears -- it is not too bad on a month on month basis -- but consumers are squeezed by food and energy prices and worries of recession, credit costs are going up and housing prices are going down. It is a tough time."

"I think the Fed will stop at 2 percent. There is a chance that the Fed will do intermeeting cuts, although I am assuming they will get to 2 percent after the next two meetings, but if the data comes in like the unemployment insurance claims this morning they might as well do it early."