The pace of new US jobless claims accelerated last week to the highest level since August, as the labour market continued to struggle amid a relentless surge in coronavirus cases and deaths.

There were a seasonally adjusted 965,000 initial applications for unemployment aid last week, higher than the 784,000 claims during the prior week, according to the Department of Labor on Thursday. Economists had forecast that 795,000 claims were filed last week.

The figures, which marked the first increase in new claims in a month, came after Washington approved a boost in federal aid and likely reflect some catch-up following two holiday-shortened weeks.

“There will be no real improvement in the jobs market until Covid containment measures are relaxed and businesses have the confidence to hire,” said James Knightley, chief international economist at ING. He warned that the “slow rate of vaccination” also threatens to prolong the recovery.

The US labour market has sputtered in recent months, resulting in 140,000 jobs lost in December amid a sharp rise in coronavirus cases and stricter curbs placed on businesses and social activity. Fatalities in the US are hovering at record highs, while parts of the US such as California — the nation’s largest economy — are facing elevated levels of infections and hospitalisations.

Continuing claims — the number of Americans actively collecting state jobless benefits — came in at 5.3m on January 2, compared with 5.1m one week earlier. Continuing claims have fallen from 10.6m at the end of September but remain above pre-pandemic levels of about 1.7m.

The insured unemployment rate, considered an alternative measure of joblessness, rose from 3.5 per cent to 3.7 per cent.

New claims through the federal Pandemic Unemployment Assistance programme, which provides benefits to the self-employed and others who would not qualify for regular benefits, advanced to 284,470 last week, from 161,159 on an unadjusted basis.

“The headline may rattle markets, but the economic impact will be limited by the recently passed stimulus bill, which will provide support for those laid off and help preserve confidence and purchasing power,” said Brad McMillan, chief investment officer for Commonwealth Financial Network.

“Overall, one more indication that the economy continues to face headwinds from the pandemic, but not an indicator that a longer term recovery will be derailed,” he added.

US stocks held firm on Thursday. The S&P 500 was up 0.3 per cent, while the tech-heavy Nasdaq Composite gained 0.5 per cent.

US president-elect Joe Biden is expected to reveal details of his proposal for additional economic stimulus later on Thursday. He has signalled that the package would be large, saying “it will be in the trillions of dollars”.

Economists partly attributed the sharp jump in new claims to the passage of fiscal stimulus late last year, which provided an extra $300 in weekly unemployment aid. “Not all individuals eligible for unemployment assistance actually claim benefits, and the supplementary payments add an incentive to file for benefits,” analysts at Oxford Economics noted.

It was “also consistent with rapidly rising Covid-19 cases and the related loss of hundreds of thousands of hospitality jobs in the last month”, said Robert Frick, corporate economist at Navy Federal Credit Union.

The preceding weeks that included Christmas and New Year factored into the data, as some Americans may have waited until after the holidays to file for unemployment, Mr Frick added.

Florida and Illinois contributed most to the large week-to-week increase, with filings in those states more than doubling from the previous week, based on advance figures that are not seasonally adjusted. Several other states reported a higher level of claims, including California, Arizona, Kansas, Maryland, New York, New Mexico, Texas and Virginia.

The Federal Reserve said a growing number of its districts reported weaker employment levels over the past month. While employment still rose in a majority of regions, the recovery was slow and “remained incomplete”, according to the central bank’s Beige Book report published on Wednesday.

Some employers said they were dealing with staffing shortages and had trouble finding qualified workers for entry-level and on-site positions — challenges that were exacerbated by the surge in coronavirus infections.

Esther George, president of the Kansas City Federal Reserve, predicted a “snapback” for the US economy once Covid-19 immunisations are completed but added that any significant delays in the vaccine rollout would pose one of the greatest risks to the outlook.

All state and federal programmes had a combined 18.4m people claiming benefits as of December 26, down from 19.2m the week before, according to unadjusted figures that are reported on a two-week delay.