Jobless Claims Are Dropping, But What About Hiring?

Source: http://www.flickr.com/photos/proimos/

Policy makers and economists are combing through August’s jobs data with one key question in mind. Has the labor market improved substantially? A brief perusal of the Department of Labor’s weekly reports on initial claims for unemployment benefits for the past four weeks suggest that job gains will be much stronger in the month of August, especially since the middle of July, initial claims have not strayed far from the 330,000 level.

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. Since weekly applications for unemployment benefits serve as a proxy for layoffs, recent numbers indicate that employers are refraining for firing workers. Fewer layoffs mean that companies have pared their workforces about as much as possible, which puts employers in position to boost payrolls should business improve.

Throughout the month of August, weekly claims for unemployment benefits have risen almost as many times as they have fallen. But economists have repeatedly said that the trend remains very encouraging.

For the week ending August 31, the Labor Department reported that initial claims for unemployment benefits dropped by 9,000 applications to 323,000. The recent declines in jobless claims indicate to BNP Paribas economist Yelena Shulyatyeva that the labor market is making a “significant improvement in claims,” as she told Bloomberg.

But — and there seems to always be a ‘but’ in recent labor analyses — “we need to see more progress on the hiring side,” she added. While weekly layoffs have declined steadily since the recession, evidence has been served up in recent economic reports that suggests the labor market is gradually strengthening but hiring has not improved at a strong enough rate to bring the unemployment rate down to the 7 percent the Federal Reserve has said qualifies as a “substantial improvement” to the labor situation.

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. Last week, that figure also declined, plummeting 3,000 to 328,500, the lowest level since October 2007.

The number of individuals continuing to receive jobless benefits dropped by 43,000 to 2.95 million in the week ended August 24, which does not include the number of people receiving extended benefits under federal programs. Unemployed workers who have used up their traditional benefits and are collecting emergency and extended benefits dropped by about 17,000 to 1.49 million in the week ended August 17, the most recent data available.

Of course, jobless claims benefits only tell part of the employment story. Challenger’s Thursday job cuts report showed employers laid off workers in August in far greater numbers than they did earlier in the year, while the payroll processor ADP announced that private employers added 176,000 jobs to their payrolls in August — a figure slightly lower than the 198,000 jobs added in July.

In addition, the Labor Department’s employment situation report, which will be released on Friday, contains a far more detailed picture of the condition of the August labor market than ADP’s report. The data shows whether the labor force participation rate — the fraction of adult Americans either employed or looking for work — is growing or decreasing.

Typically, as the economy recovers and more people begin to search for work, the unemployment rate increases because there are more people looking for a job and job seekers are registered as unemployed while they hunt. Last month, the unemployment rate dropped two-tenths of a percentage point because Americans left the labor force.

Concerns for the health market were reignited after the Labor Department released the employment situation report for July, which showed that that payrolls added the fewest number of workers in four months. The United States economy not only created fewer than expected jobs in July, but the majority of the gains come in the low-wage retail and restaurant sector. The 162,000-job gain did push the unemployment rate down to 7.4 percent, the lowest in more than four years — but a shrinkage in the labor force also contributed to the decline, making it less impressive.

Screen Shot 2013-09-05 at 9.17.47 AM

Follow Meghan on Twitter @MFoley_WSCS

Don’t Miss: Is America’s Headline Unemployment Rate too Optimistic?

More from The Cheat Sheet