Job Churn Is Once Again Closing in on Pre-Recession Levels

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Economic reports released over the last several days point to a similar reality: the cold weather has eased its chilling grip on the U.S. economy. Last week, the U.S. Department of Labor reported that U.S. employers added 175,000 jobs to payrolls last month — a pace far surpassing both December and January, when payrolls expanded by 84,000 and 129,000 jobs, respectively. While the most recent Employment Situation Report upwardly revised both of the previous two months’ figures, hiring during those two months was still hobbled, and February’s gain represented a significant acceleration in job creation. Then, on Thursday, a report from the Labor Department revealed that initial claims for unemployment benefits fell to the lowest level since November, while data from the Department of Commerce showed that a surge in consumer spending pushed retail sales higher last month.

Given that consumer spending and the health of the labor market are intimately connected, the improvements in retail sales and job creation bodes well for economic growth in the first quarter of 2014.

The decrease in initial jobless claims recorded last week confirms one trend; businesses remain confident enough to keep workers even if they have not been inclined to increase payrolls significantly in recent months. In the week ended March 8, Americans filed 315,000 new jobless claims, a decrease of 9,000 from the previous week’s upwardly revised figure of 324,000. That drop not only put claims at levels last seen more than three months ago, before cold weather put the breaks on the labor market, but also put jobless claims in line with pre-recession levels. Before the recession began in December 2007, an average number of 320,000 initial claims were filed each week due to the normal churn in the job market. Plus, economists say any claims figure below 350,000 indicate moderate job creation.

Screen Shot 2014-03-13 at 8.54.08 AMWhat is clear is that initial claims for unemployment benefits — which serve as a proxy for layoffs — paint a picture of a strengthening and resilient labor market. If initial claims for unemployment benefits defined the whole labor market story, then the narrative of the jobs recovery would be easy to summarize: progress is steady, or at least, the labor market situation is not worsening.

Confirming that thesis is the fact that the underlying trends in jobless claims remained positive as well in the past week. Jobless claims provide the first look at the employment situation for any given month, but since the weekly figures can be volatile, economists use the four-week moving average to understand wider trends. After all, according to Mesirow Financial Chief Economist Diane Swonk, it is “the trend in employment that matters.” In the week ended March 8, the four-week moving average dropped to 330,500, a decrease of 6,250 from the previous week’s downwardly revised average of 336,500.

In addition, the number of people continuing to receive jobless benefits decreased by 48,000 to 2.86 million in the week ended March 1, which is the lowest level recorded since December.

But while the downtick in jobless claims can be termed as a positive sign for the labor market, it is important to remember that jobless claims numbers are a leading economic indicator, and therefore only offer indirect clues about the pace of hiring — the other piece of the labor market story. As for hiring, while “inroads” into unemployment are being made, progress is still slow. In other words, job growth may no longer be bad, but it is still sluggish.

February’s job growth of 175,000 is approximately just enough to keep pace with the growing population, and job growth has yet to return to the average of 200,000 jobs per month added from June through November. Further, economists say that 200,000 jobs per month must be added in order to attain sustainable job growth. Factoring in population growth, economists have calculated it will still take years for the job market to return to pre-recession health, when the unemployment rate was between 4 percent and 5 percent.

Still, “the labor market continues to improve,” Société Générale senior U.S. economist Brian Jones told Bloomberg. “We’re likely to get eye-popping numbers for March payrolls. The economy is not in a soft patch.” Employers — who have generally been cutting back on layoffs, as the jobless claims numbers confirm — will be encouraged to hire more workers once consumer demand picks up. But, it is important to remember that because consumer demand is intimately connected to the health of the labor market, consumers also need greater employment gains to feel confident enough to increase their outlays.

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