New unemployment claims in the United States increased last week to the highest level in two years, driven up by hurricane Katrina. Meanwhile, the U.S. leading economic indicators declined before the storm devastated the Gulf Coast.

The U.S. Labor Department said today that initial claims for jobless benefits rose by 8,000 to 437,000, after seasonal adjustments, in the week ended Sept. 17.

It was the highest level of new claims since the week ending July 5, 2003, when 437,000 first-time applications for unemployment compensation were made. The four-week average of new claims last week climbed to 376,250 from 347,250.

Initial claims for the prior week, ending Sept. 10, were adjusted upward sharply to 424,000. Originally, claims for that week were reported at 398,000. New claims for the week of September 3 totalled 327,000.

On an unadjusted basis, there were 343,793 new claims filed last week. A Labor Department statistician estimated 103,000 of those were related to Katrina.

Meanwhile, a separate report from the U.S. Conference Board showed the economic outlook was beginning to falter even before Katrina made landfall. The research group’s survey of leading economic indicators, compiled before Katrina devastated the U.S. Gulf Coast and released today, fell 0.2% in August as consumer confidence sagged.