) -- The labor dispute between

Verizon Communications

(VZ) - Get Verizon Communications Inc. Report

and its union workers caused an unexpected uptick in initial jobless claims.

The Labor Department reported that 417,000 Americans filed for first time unemployment benefits in the week ended Aug. 20, up 5,000 from the prior week. Economists were expecting a small improvement, with the consensus estimate for initial claims coming in at 400,000, slightly down from the originally reported 408,000 in the week prior.

"As a result of a labor dispute between Communications Workers of America and Verizon Communications, at least 12,500 initial claims were filed in the week ending 8/13/2011 and at least 8,500 initial claims were filed in the week ending 8/20/2011," said the Labor Department's report on jobless claims.

While the latest reading on initial claims might be skewed, it still shows a lagging jobs market that will likely put additional pressure on Federal Reserve chairman at the end of the week.

"There is a real danger that the recent economic slowdown and financial market turmoil resulted in non-farm payroll employment falling outright in August, perhaps by around 25,000," estimates Capital Ecoomics. "That would be the first decline since February 2010 and would spook both the markets and the Fed."

The disappointing initial jobless numbers could be seen as adding to the likelihood that the Federal Reserve will need to amp up their aggressiveness in addressing the economy or giving some sort of assurance to investors. Speculation over what exactly Ben Bernanke will say in his Jackson Hole, Wyoming speech on Friday has been swirling. Many analysts say that investors' expectations are too high.

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"The lack of willingness of

initial jobless claims to break below 400,000 remains a real concern for those looking for a labour market recovery," writes David Semmens, economist at Standard Chartered Bank, in a note. "It is important to remember demand drives hiring, not the other way around; and while demand remains weak, employers will hold off from making those all important hires."

The total number of Americans filing for unemployment look a bit better than the initial claims data. Continuing claims for the week ended Aug. 13 fell to 3.641 million from 3.721 million, reaching the lowest level since September 2008. Economists were expecting the reading to come in at 3.7 million.

Meanwhile, the four-week moving average ticked up 4,000 to 407,500.

Futures on the S&P 500 and Nasdaq moved down slightly to the news but overall the market's reaction was marginal.

-- Written by Chao Deng in New York.

>To contact the writer of this article, click here:

Chao Deng


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