Once again, jobless claims fall but continuing claims rise

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Another mixed bag regarding the most recent labor market data. Initial jobless claims unexpectedly fell 13,000 to 623,000 for the week ending May 23, the U.S. Labor Department announced Thursday.

Economists surveyed by Bloomberg News had expected this week's initial jobless claims to total 631,000. Also, the four-week moving average decreased 3,000 to 629,500.

However, the continuing claims picture did not improve. Continuing claims rose another 110,000 to a record 6.79 million.

Lots of jobs needed

To put that last figure in some more perspective, the U.S. economy would have to add about 200,000 jobs per month -- a roughly net 100,000-job-gain over the monthly gain needed to keep unemployment from rising -- for the next five years to replace the 5.7 million jobs lost during the recession.

Still, despite the upside/downside jobs data, Michael Englund, chief economist for Action Economics LLC in Boulder, Colorado, argues jobless claims have peaked.

"Claims confirm that labor market conditions are turning," Englund told Bloomberg News Thursday. "Layoffs will continue, but the pace is slowing. This is reinforcing the notion that there's a diminished downdraft in consumer spending.''

However, investors should not expect a quick reduction in the unemployment rate as U.S. economic growth resumes. That's because unemployment is a lag indicator; it will likely continue to rise for several months even after the U.S. economy starts to recover, as companies first use existing capacity to ramp-up production, then later add employees as demand strengthens.

Economic Analysis: Once again, one up, one down regarding jobless claims, but the trend could be the economy's -- and the investor's -- friend. Put simply, if jobless claims have peaked and repeatedly fall week after week, that would be the best news for the U.S economy since the recession started. It would not signal net job growth, but jobless claims declines point to a day when aggregate demand starts to rise.

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