The number of Americans filing first-time claims for jobless benefits unexpectedly increased last week as a relentless surge in new Covid-19 infections hobbled business operations.

The figures are more evidence that the US economy's recovery from the pandemic recession was faltering. 

Initial claims for state unemployment benefits totalled a seasonally adjusted 885,000 for the week ended December 12, compared to 862,000 in the prior week, the Labor Department said today. 

Economists polled by Reuters had forecast 800,000 applications in the latest week. 

Jobless claims are above their 665,000 peak during the 2007-09 recession, though they have dropped from a record 6.867 million in March. 

The weekly unemployment claims report, the most timely data on the economy's health, followed in the wake of data earlier this week showing retail sales declined for a second month in a row in November.  

The Federal Reserve last night kept its benchmark overnight interest rate near zero and pledged to continue pumping more money into the economy through asset purchases to fight the recession. 

Fed Chair Jerome Powell told reporters that the pace of economic improvement had "moderated" and that the road ahead remained "highly uncertain." 

The US is battling a fresh Covid-19 outbreak, with at least 16.7 million infected and more than 304,000 dead, according to a Reuters tally.

State and local government have responded with renewed restrictions on businesses, while some consumers are avoiding crowded places like shopping malls, restaurants and bars. California, home to nearly 40 million people, imposed new tough stay-at-home orders last week. 

The restrictions and reduced income as millions of unemployed and underemployed lose a government-funded weekly subsidy is undercutting consumer spending, which will lead to more job losses.

Though a Covid-19 vaccine is being deployed, health experts say it could take months for herd immunity. 

Congress moved closer yesterday to a $900 billion rescue package. Economists said the new fiscal stimulus could limit, but not fully offset weaker consumer spending and prevent further layoffs. 

More than $3 trillion in government pandemic relief led to record economic growth in the third quarter. 

Last week's claims data covered the period during which the government surveyed establishments for the non-farm payrolls portion of December's employment report. Some economists expect a decline in employment this month. 

The economy, which plunged into recession in February, added the fewest jobs in six months in November. 

Only 12.4 million of the 22.2 million jobs lost in March and April have been recovered. 

Growth estimates for the fourth quarter are mostly below a 5% annualised rate and most economists expect the economy to contract in the first three months of 2021. 

The economy grew at a 33.1% rate in the third quarter after contracting at a 31.4% pace in the April-June quarter, the deepest since the government started keeping records in 1947.