The Labor Department reported Thursday that new applications jumped by a seasonally adjusted 38,000 to 445,000 for the week ending March 29. That represented the highest level of new claims since the week ending April 13, 2002.
Thursday's report highlighted the difficulties both companies and workers are facing, not only because of war but also because of a muddled economic climate.
"It is the pall of the Iraqi war, higher energy prices and lower stock prices just weighing on the willingness of companies to maintain jobs," said Mark Zandi, chief economist at Economy.com. "The uncertainty is so high they just can't think about expanding their businesses at this point."
The pace of layoffs last week was worse than economists were predicting. They were forecasting claims to rise to around 410,000.
Economists say claims above the 400,000 mark generally depict an extremely weak job market.
The more stable four-week moving average of new claims also rose last week to 426,250. The moving average has been above the 400,000 level for five straight weeks.
"Workers are also staying out of work longer. In February, 22 percent of unemployed workers had been jobless for more than half a year," Sophia Koropeckyj, economist with Economy.com, told CBS MarketWatch.
"Nearly 11 percent have been unemployed more than a year; these people are no longer eligible for unemployment benefits."
Uncertainties surrounding the war and lackluster profits are among the forces that are making businesses step up layoffs. Those same forces also are making companies reluctant to aggressively hire and to invest heavily in capital projects, major forces restraining the economy.
"There is no doubt that the trend in claims has risen this year, in tandem with the clear drop in business confidence in the period before the war with Iraq," said Ian Shepherdson, chief U.S. economist with High Frequency Economics.
After falling into a recession in 2001, the economy has been struggling since then to get back on firm footing. But the road to recovery has been bumpy — with a quarter of strength followed by a quarter of weakness.
With economists forecasting sub-par economic growth for both the first and second quarters of this year, the nation's labor market is likely to deteriorate further, they say.
The nation's unemployment rate rose to 5.8 percent in February. Economists believe it could move to 5.9 percent or 6 percent for March, and higher in the months ahead. The government reports on the employment situation for March on Friday.
Economists also believe the economy lost 40,000 jobs in March alone. That wouldn't be good, but it wouldn't be as bad as February when payrolls were slashed by 308,000.
To energize the economy and help job creation, President Bush has called on Congress to enact a fresh round of tax cuts.
Federal Reserve policy-makers have been keeping interest rates at very low levels, with the hope that might help cushion the negative impact of the ailing job market, a turbulent stock market, higher energy prices and war worries.
A big fear is that a worsening labor market will make consumers a key force keeping the struggling economy going — turn more cautious, slowing the economy further.
New jobless claims fell by 20,000 two weeks ago, but that left the level of claims at a still high 407,000.
New claims have been running above the 400,000 mark for seven weeks in a row.
The number of workers continuing to draw unemployment benefits soared by 107,000 to 3.61 million for the work week ending March 22, the most recent period for which that information is available.
That sharp rise left the level of continuing benefits at their highest point since Nov. 16, 2002. The high level of claims suggest that not a lot of hiring is taking place, economists say.
"If you get caught losing your job, this is an extremely difficult market to find another one and it is getting worse," Zandi said.