Jobless Claims Jump, Economists Blame Weather
For weeks, initial applications for unemployment benefits have declined, with the number of Americans filing jobless claims falling to the lowest level in more than a month earlier in January. However, for the past two weeks, claim numbers have risen. Data released by the Department of Labor’s Bureau of Labor Statistics on Thursday show that applications increased 19,000 to a seasonally adjusted 348,000 in the week ended January 25, a much larger jump than the previous week’s 4,000-claim increase and a much greater jump than analysts expected.
In fact, that level is the highest recorded in six weeks. Comparatively, economists had expected approximately 327,000 new jobless claims, a decrease from the previous week’s revised figure of 329,000. But it’s likely the unusually cold weather experienced by much of the country contributed to the rise.
Continuing claims have been elevated in recent weeks as well, which economists have also attributed to the frigid temperatures. The past two reports from the Department of Labor have shown continuing claims figures higher than any reported since July, but the number of people continuing to receive jobless benefits fell by 16,000 to 2.99 million in the week ended January 18. The Federal Reserve also seems to be dismissing the slightly higher numbers. On Wednesday, central bank policy makers announced a further reduction to its monthly stimulus program; asset purchases will be dialed back by another $10 billion.
Still, recent drops in first-time jobless claims have provided further evidence of the resilience of the U.S. labor market. It suggests that while job creation was not strong in December, businesses remain confident enough to keep workers this month even if they were not inclined to increase payrolls last month. 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.
“It’s reassuring,” John Hancock Financial Services chief economist William Cheney told Bloomberg last week regarding the general downward trend of claims. “After the December jobs report everybody was pretty nervous. This is a number that makes it more likely December was a fluke.”
Earlier in January, the Labor Department announced that the U.S. economy created a fewer-than-expected 74,000 jobs in the month of December, prompting some speculation that the growing momentum evidenced by the labor market in the previous two months was at an end. Yet other economists — including Moody’s Analytics chief economist Mark Zandi — argued that the meager payroll additions were not a harbinger of a changing employment trend, but an anomaly that would be wiped away by later revisions. While evidence to support his assertion will only be available when January’s numbers are released next month, the downward trend in first-time jobless claims suggests there has been no major changes in the labor market, at least in terms of layoffs.
However, one figure in the jobless claims report could be cause for concern: The four-week moving average of jobless claims rose last 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. In the week ended January 25, that average increased by 750 claims to 333,000 from the previous week’s upwardly revised average of 332,250.
As Mesirow Financial chief economist Diane Swonk told CNBC, it is “the trend in employment that matters.” This bodes well for December’s low employment gains, as the initial numbers are not as important as the revisions. “In an economy you tend to miss stuff overtime. You miss turning points,” she said. “These numbers aren’t very good at picking up turning points. They only catch it in the revisions.”
Of course, trends in jobless claims, a leading economic indicator, only offer indirect clues about the pace of hiring. “The level of claims is now consistent with a healthy labor market turnover,” BNP Paribas U.S. economist Yelena Shulyatyeva told Bloomberg. “But companies are still reluctant to hire and invest, so that’s the real issue. For the economy to accelerate, we need to see acceleration in hiring.” Job creation — which was notably weak for most of 2013, even as jobless claims trended down for much of the year — is the other half of the labor market story. However, there is a relationship between jobless claims and job creation, and typically, applications for unemployment benefits wane before hiring accelerates.
Excluding December’s job numbers — which economists have described as a fluke — a stronger trend in job creation is beginning to take shape when the monthly job reports are compared. But, as Swonk indicated, improvements in the labor market are often hard to see in weekly unemployment benefit applications. Economists expect employers to have added 200,000 positions to payrolls in January.
Recent reports on the U.S. economy have been largely positive. The Department of Commerce announced Thursday that gross domestic product rose at a 3.2 percent annual rate in the last three months of 2013. That pace was below the previous quarter’s greater-than-expected 4.1 percent growth but well above the anemic 2 percent pace typical of the post-recession economy.
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