Jobless Claims: Is No News, Good News?

Source: Thinkstock

Source: Thinkstock

Jobless claims — which serve as a proxy for layoffs — highlight the fact that emerging unemployment is returning to acceptable levels. Or, in other words, fewer Americans are being laid off, even if the nation’s long-term unemployment level remains elevated. And unemployment data released by the Department of Labor Thursday confirms the healing of the labor market continues its slow progress; in the week ended June 14, fewer Americans filed initial applications for unemployment benefits. Beating economists expectations, jobless claims decreased 6,000 to 312,000 from the previous week’s upwardly revised 318,000.

Jobless Claims

However, while the long-term trend in jobless claims is one of decline, examining weekly numbers shows progress can be rather uneven. Last month, Americans filed the fewest number of first-time applications for unemployment benefits in seven years, meaning the last time jobless claims — and by association, emerging unemployment — fell so low was before the financial crisis and subsequent recession. But in the weeks that followed, jobless claims rebounded from the 297,000-claim low, and, as RBS Securities economist Omair Sharif noted recently, initial jobless claims have rarely stabilized at or below that key 300,000-claim level.

Of course, weekly upticks are not horrible news for the jobs recovery; economists say any claim figure below 350,000 indicates moderate job creation. And according to Moody’s Analytics senior economist Ryan Sweet, recent claim figures suggest the United States will “have another decent gain in non-farm payrolls” this month. The drop in the four-week moving average of jobless claims suggests a similar reality. 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 employment, which are far more telling of labor market health than weekly readings. Alongside the modest increase in weekly claims, the four-week average dropped to 311,750 from the previous week’s 315,500. Even with this decrease, the average rests just above the seven-year low of 310,200 hit earlier this year.

Meanwhile, the number of workers continuing to draw unemployment benefits declined by 54,000 to a seasonally adjusted 2.56 million in the week ended June 7. That is the lowest level of continuing claims recorded since October 2007. Continuing claims are reported with a one-week lag.

What do the weekly numbers mean?

“The trend in initial claims is good,” Sweet told Bloomberg before the Labor Department released the weekly figure. “The job market continues to heal.”

Because employers have grown more confident in the strength of the economic recovery, firings have been brushing pre-recession lows, when the labor market’s normal job churn resulted in an average number of 320,000 initial claims. And, for a majority of the past two years, jobless claims have been charting out a downward course. The problem for many months has been job creation, not been layoffs. It is important to remember when analyzing jobless claims that the 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. And, generally, recent data has provided a reason for economists believe job creation — while steady — is not rebounding as strongly as economists had expected

But even here, there are signs of improvement. Now, payroll growth is on track to record the biggest gains of any year since 1999. And this employment growth could spur wage increases needed to accelerate spending consumer spending, which, in turn, will propel greater economic expansion.

So what about payroll growth?

The Labor Department’s May Employment Situation Report told the story of an economy, and a labor market, that is healing. Yet there was also evidence of deep scars.

The jobs report showed that U.S. employers expanded payrolls by 217,000 jobs last month — a slightly greater gain than the average of 214,000 jobs added per month in 2014. May marked the fourth consecutive month in which job creation surpassed 200,000, a key benchmark for the health of the economy. Now, “people will start accepting that the labor market is working better than people think it is,” IHS Global Insight chief U.S. economist Doug Handler told the Washington Post. And indeed the labor market has achieved an important goal; May’s employment gains mean all the jobs lost during the recession have been recaptured, leaving employment at an all-time high of 138.4 million people.

Of course, in the five years of the recovery, the U.S. population has grown, and so the percentage of Americans that are employed remains smaller than before the recession began. According to an analysis conducted by the liberal Economic Policy Institute, more than 7.1 million jobs need to be created to fill that gap. And that reality indicates to the think tank’s economist Heidi Shierholz that the United States is “far, far from healthy labor market conditions.” Plus, the labor force participation rate remains very low by historical standards, long-term unemployment is still elevated, and many workers are underemployed.

What is the Federal Reserve thinking?

On Wednesday, following the conclusion of the Federal Open Market Committee meeting, central bank policy makers trimmed the economic stimulus program by a further $10 billion, marking the fifth consecutive decrease. Now, monthly bond purchases stand at $35 billion. In explaining the Fed’s decision, Chair Janet Yellen noted the the labor market generally shows improvement. Yet, “a broader assessment of indicators suggests that underutilization in the labor market remains significant,” and underutilization keeps slack in the labor market, leaving workers with little leverage to push for wage increases. And so the FOMC still intends to keep the benchmark interest rate near zero or a “considerable time” after the bond-buying concludes.

More From Wall St. Cheat Sheet:

Follow Meghan on Twitter @MFoley_WSCS