U.S. initial unemployment claims surged to nearly 1 million in the first week of 2021, hitting the highest weekly total since August 2020 as the recent wave of COVID-19 infections and business restrictions weighed on the labor market.

Jobless claims totaled 965,000 in the week ended Jan. 9, significantly higher than the previous week's revised reading of 784,000, and the consensus estimate of economists polled by Econoday, which was for a weekly total of 790,000.

The latest jobless claims reading was the highest since the 1.01 million recorded in the week ended Aug. 22, 2020, data from the Department of Labor showed.

The rise in jobless claims is a sign that the worsening state of the pandemic is bearing down on the labor market, said Sarah House, senior economist at Wells Fargo Securities.

"Ten months into the pandemic, job instability remains tremendous. New filings relative to the number of jobs in the economy remains higher than at the peak of the Great Recession," House said in a note.

Some of the increase in jobless claims filings could be attributed to the $300 per week in expanded unemployment benefits included in the $900 billion pandemic relief bill signed by President Donald Trump in late December 2020, according to Nancy Vanden Houten, lead economist at Oxford Economics.

The Bureau of Labor Statistics reported on Jan. 8 that nonfarm payroll employment in the U.S. fell by 140,000 jobs in December 2020, marking the first decline since April 2020.

In the week ended Jan. 9, the four-week moving average of initial claims rose to 834,250 from the prior week's revised 816,000.

In the week ended Jan. 2, seasonally adjusted insured unemployment increased to 5.27 million from the preceding week's unrevised level of 5.07 million.

The seasonally adjusted insured unemployment rate, which measures the proportion of the labor force receiving unemployment benefits, was 3.7%, an increase from the previous week's unrevised figure of 3.5%.