A sign that the economy may be finally on the mend? The latest news is that jobless claims are now the lowest in more than two years:
New claims for unemployment benefits dropped more than expected last week to their lowest level in more than two years, suggesting the labor market recovery was gaining strength.
Initial claims for state unemployment benefits fell 34,000 to a seasonally adjusted 388,000, the lowest reading since early July 2008, the Labor Department said on Thursday. That was well below economists’ expectations for 415,000.
The prior week’s claims figure was revised modestly up to 422,000 from the previously reported 420,000. A Labor Department official said there was nothing unusual in the state-level data and described the report as clean.
The four-week average of new jobless claims, considered a better measure of underlying labor market trends, fell 12,500 to 414,000, the lowest level since the week ending July 26, 2008.
The steady decline in claims in recent weeks likely indicates the pace of job creation picked up this month, after the Labor Department’s non-farm payrolls report showed employers added a paltry 39,000 jobs in November.
The December employment data is due on January 7, and a preliminary Reuters survey shows economists expect non-farm payrolls increased 126,000 this month, but still not enough to significantly reduce the unemployment rate, which is expected to have edged down to 9.7 percent from 9.8 percent in November.
The claims data also showed the number of people still receiving benefits under regular state programs after an initial week of aid rose 57,000 to 4.13 million in the week ended December 18, above market expectations for 4.10 million. The prior week’s figure was revised slightly up to 4.07 million.
But the Wall Street Journal’s Kelly Evans warns that this new should not be over hyped:
The jobless claims report is hardly the bastion of good news bulls have lately made it out to be.
Certainly, the recent drop in new claims for unemployment benefits is an encouraging sign. On Thursday, the Labor Department is expected to report further improvement, with its weekly tally dropping to 418,000 from 420,000 the week before. The pace of layoffs appears to have slowed considerably since mid-August when claims jumped above the half-million mark.
But that isn’t the whole story. The same report also shows the total number of claimants, or those actually receiving unemployment benefits each week, at just shy of nine million. Of them, the majority—some 4.7 million workers—are considered “long-term unemployed,” out of work for 27 weeks or more. They have exhausted their 26 weeks of state unemployment benefits and are drawing federally funded benefits for up to 99 weeks, depending on their state’s unemployment level.
As the recovery progresses, the level of long-term unemployment in the U.S. is just as significant—if not more so—as the level of new jobless claims. Right now, it shows “the firing has stopped, but we’re still waiting for the hiring to pick up,” says Standard Chartered economist David Semmens. The longer that takes, the more likely it leads to a higher level of structural unemployment.
It’s also a big reason for the continued fragility of consumer confidence and the weak state of housing, where prices are again falling. Credit Suisse points out that for two and a half years now, the share of consumers expecting their income to decrease over the next six months has exceeded those expecting it will increase.
Joe Gandelman is a former fulltime journalist who freelanced in India, Spain, Bangladesh and Cypress writing for publications such as the Christian Science Monitor and Newsweek. He also did radio reports from Madrid for NPR’s All Things Considered. He has worked on two U.S. newspapers and quit the news biz in 1990 to go into entertainment. He also has written for The Week and several online publications, did a column for Cagle Cartoons Syndicate and has appeared on CNN.