Weekly jobless claims increase 55,000 to 286,000 Continuing claims jump 84,000 to 1.635 million Mid-Atlantic factory activity picks up in January Existing home sales drop 4.6% in December WASHINGTON, Jan 20 (Reuters) - The number of Americans filing new claims for unemployment benefits jumped to a three-month high last week, likely as a winter wave of COVID-19 infections disrupted business activity, which could weigh on job growth in January. The third straight weekly increase in jobless claims reported by the Labor Department on Thursday was also influenced by unfavorable seasonal factors after the holidays. But coronavirus cases, driven by the Omicron variant, are subsiding and the seasonal factors, the model used by the government to iron out seasonal fluctuations in the data, are seen normalizing soon, suggesting the recent surge in applications is a blip. "The Omicron variant of COVID-19 is hurting the U.S. labor market, but the good news is that this will be temporary," said Ryan Sweet, a senior economist at Moody"s Analytics in West Chester, Pennsylvania. Initial claims for state unemployment benefits surged 55,000 to a seasonally adjusted 286,000 for the week ended Jan. 15, the highest level since mid-October. The increase was the largest since last July. Economists polled by Reuters had forecast 220,000 applications for the latest week. Unadjusted claims fell 83,418 to 337,417 last week. The decline was, however, less than the 138,773 decrease that had been anticipated by the seasonal factors. Claims rose 6,075 in California, but plunged 14,011 in New York. The United States is reporting an average of 752,698 new coronavirus infections a day, according to a Reuters analysis of official data. The Census Bureau"s Household Pulse Survey on Wednesday showed 8.8 million people reported not being at work because of coronavirus-related reasons between Dec. 29 and Jan. 10. That was up from the 3 million from Dec. 1 to Dec. 13. The bureau"s Small Business Pulse Survey released on Thursday also showed an increase in establishments reporting large negative impacts from the pandemic. It was led by accommodation and food services businesses, with big rises also in education as well as arts entertainment and recreation. The labor market setback is unlikely to stop the Federal Reserve from raising interest rates in March to tackle high inflation. Claims have plunged from a record high of 6.149 million in early April 2020. Employers are desperate for workers, with 10.6 million job openings at the end of November. The unemployment rate is at a 22-month low of 3.9%, a sign the labor market is at or close to maximum employment. "The underlying strength in the labor market suggests this is a temporary blip due to Omicron," said John Lynch, chief investment officer at Comerica Wealth Management in Charlotte, North Carolina. "We look for job growth to continue to firm as global cyclical recovery persists." Stocks on Wall Street were higher. The dollar rose against a basket of currencies. U.S. Treasury yields fell. BAD OMEN? Signage for a job fair is seen on 5th Avenue after the release of the jobs report in Manhattan, New York City, U.S., September 3, 2021. REUTERS/Andrew Kelly Signage for a job fair is seen on 5th Avenue after the release of the jobs report in Manhattan, New York City, U.S., September 3, 2021. REUTERS/Andrew Kelly But some economists worried that the jump in claims, which followed a plunge in retail sales in December as well as manufacturing production, could be signaling a faster slowdown in economic activity than currently anticipated. "The higher layoffs are a cautionary tale for the economy where despite inflation pressures, the Fed will have to proceed with their interest rate hikes at a measured pace," said Christopher Rupkey, chief economist at FWDBONDS in New York. "The economy may be slowing down more than previously believed." Manufacturing, however, appears to be picking up, though shortages and higher prices remain a headache. The Philadelphia Fed said on Thursday its business activity index rose to a reading of 23.2 in January from 15.4 in December. Any reading above zero indicates expansion in the region"s manufacturing sector, which covers eastern Pennsylvania, southern New Jersey and Delaware. News on the housing market was discouraging. A fourth report from the National Association of Realtors showed existing home sales dropped 4.6% to a seasonally adjusted annual rate of 6.18 million units in December as higher prices amid record low inventory continued to shut out some first-time buyers. Economists expect demand for housing to remain strong even as mortgage rates increase. read more "Unless job and income growth slow sharply, owner-occupied housing demand is likely to remain solid, keeping upward pressure on house prices," said David Berson, chief economist at Nationwide in Columbus, Ohio. Worker shortages are boosting wages, and households are sitting on savings accumulated during the pandemic. The claims data covered the period during which the government surveyed businesses for the nonfarm payrolls component of January"s employment report. Last week"s jump in claims together with the rise in businesses negatively impacted by COVID-19 and persistent labor shortages raise the risk of a drop in payrolls this month. The economy added 199,000 jobs in December, the fewest in a year. The workforce is about 2.2 million smaller than before the pandemic. The recent softening in the labor market trend was also highlighted by the claims report, which showed the number of people receiving benefits after an initial week of aid increased by 84,000 to 1.635 million in the week ended Jan. 8. "The pandemic continues to displace workers from the labor force," said Van Hesser, chief strategist at Kroll Bond Rating Agency in new York. "We need the labor force to grow to sustain healthy economic growth."