Jobless Claims Are Dropping, But How Strong Is Hiring?

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“When you look at the labor market, job destruction has been very, very low,” Raymond James chief economist Scott Brown told Bloomberg Businessweek ahead of Thursday’s jobless claims report. That is the good news. Data released by the Department of Labor’s Bureau of Labor Statistics Thursday showed that first-time application for unemployment benefits decreased 20,000 to a seasonally adjusted 331,000 in the week ended February 1, the first drop in initial jobless claims recorded in three weeks. Comparatively, analysts were a expecting a much more modest drop to 335,000 new claims from the previous week’s upwardly revised average of 351,000.

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The report also contained further evidence that the downward trend in initial jobless claims will continue. 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. In the week ended February 1, that average decreased by 250 claims to 334,000 from the previous week’s upwardly revised average of 333,750. After all, as Mesirow Financial Chief Economist Diane Swonk told CNBC, it is “the trend in employment that matters, and the trends have been good.”

Initial claims for unemployment benefits — which serve as a proxy for layoffs — paint a picture of a strengthening and resilient labor market; the general downward trend of jobless claims offers a sign that even though job creation was not strong in December and may have been equally weak in January, business remained confident enough to keep workers last month even if they were not inclined to increase payrolls. If initial claims for unemployment defined the whole labor market story, then the narrative of the jobs recovery would be easy to summarize: progress is steady. But declining first-time applications for unemployment benefits and falling layoff numbers are only half of the story; they must be accompanied by increased hiring.

Initial claims typically wane before job growth can accelerate. But for most of this year, employers behaved much as they did during the recession, keeping their workforces — and therefore labor costs — as low as possible. Jobless claims declined without the accompaniment of greater job growth, until October and November, when the trend of job creation changed. At the time, it seemed those economists who expected the labor market recovery to take giant steps toward the end of the year were correct.

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