Initial jobless claims drop, but continuing claims rise

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More modest progress for the U.S. labor market: initial jobless claims unexpectedly dropped 52,000 to 565,000, but continuing claims rose 159,000 to 6.88 million, the U.S. Labor Department announced Thursday.

It was the lowest initial jobless claims total since January. However, the Labor Department cautioned that last week's initial jobless total was likely skewed lower, due to the short week which included the July 4 Independence Day holiday.

Economists surveyed by Bloomberg News had expected this week's initial jobless claims to total 610,000. Meanwhile, the four-week moving average decreased 10,000 to 606,000.

Economists view the four-week average as a better indicator of unemployment conditions, as it smooths out anomalies for strikes, holidays, or other idiosyncratic events.

Putting the data in perspective

Michael Gregory, a senior economist for BMO Capital Markets in Toronto, underscored to investors that both jobless claim declines and job loss declines are not tantamount to job growth.

"Job losses lessening is a sign that the worst is over, but it doesn't mean the labor market will get better in a hurry," Gregory told Bloomberg News Thursday. "It's going to keep consumer spending depressed. People will be reinstating the term 'jobless recovery.'"

However, provided initial jobless claims keep declining in the weeks ahead, that would nevertheless represent the best news for the U.S economy since the recession started. True, as Gregory noted, it would not signal net job growth, but jobless claims declines point to a day when aggregate demand starts to rise -- a commercial condition the nation hasn't experienced in more than a year.

Also in the Labor Department's report, 21 states and territories reported an increase in new claims for the week ended June 27, while 32 reported a decrease. The data on states and territories are reported with a one-week lag.

Economic Analysis: A sharp decline in jobless claims: but again, one has to qualify that conclusion, due to the short week, which typically reduces jobless claims. Further, the continuing claims total remains at deeply problematic levels: near 7 million. Investors should take away from the new report that jobless claims have peaked, but the nation still hasn't identified or created engines of growth that will lead to the millions of new jobs that will be necessary to return to rising earnings, rising incomes, and expanding prosperity. Further, even assuming that there will eventually be a restructured U.S. economy that depends less on consumer spending, sustainable GDP growth can not occur without job growth -- which underscores the vitalness of the latter.

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