Layoffs continue to ease as new jobless claims fall 40,000 in two weeks

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Notch another modest positive for the U.S. economy: Initial jobless claims fell another 10,000 to 514,000 for the week ended October 10, the U.S. Labor Department announced Thursday.

Even better, initial jobless claims have fallen about 40,000 in the past two weeks -- a substantial decline, and one that suggests the long period of large initial jobless claims is starting to subside and that the labor market is gradually improving.

Economists surveyed by Bloomberg News had expected this week's initial jobless claims to total 520,000. Another positive sign for the economy: the four-week moving average decreased 9,000 to 531,500. Economists view the four-week average as a better indicator of unemployment conditions, as it smooths-out anomalies for strikes, holidays, and other idiosyncratic events.

Equally encouraging, a key manufacturing index is signaling that expansion is up ahead. The Empire State Manufacturing Index (ESMI) surged 16 points to 34.6 in October, the Federal Reserve Bank of New York announced Thursday. It's the highest level for the ESMI in five years. Further, the new orders index increased 11 points and the shipments index surged 30 points to 35.1. Also, both employment indexes turned positive for the first time more than a year. In a nutshell, the above increases point to economic growth. The Bloomberg survey had expected the October ESMI to total 17.5.

The long-term unemployed picture also improved, with continuing claims falling 75,000 to 6.07 million.

Economists also monitor the continuing claims stat because it provides a snapshot of how long it's going to take the typical person to find comparable employment once he/she has sustained a job loss. In general, continuing claims above three million reflect a slack labor market, and point to extended six to nine month (or longer) job searches.

More than 7.2 million Americans have lost their job since the recession began in December 2007. Further, many economists expect job losses to continue until at least the end of Q4, perhaps as long as Q1/Q2 2010, as the U.S. economy continues to restructure. Unemployment, a lagging indicator, may not peak until mid or even late 2010, with most economists seeing a top at/near 10 percent. The current U.S. unemployment rate is 9.8 percent.

The largest increases in initial jobless claims for the week ending October 3, the latest week for which data is available, were in Pennsylvania, 3,618; Washington state, 1,857; Wisconsin, 1,629; Missouri, 1,441; and Texas, 1,291. The largest decreases were in Florida, 5,178; California, 3,911; Tennessee, 683; Illinois, 682, and Arkansas, 589.

The highest insured unemployment rates for the week ending September 26, the latest week for which data is available, were in: Puerto Rico, 7.1 percent; Oregon, 5.3 percent; Nevada, 5.2 percent; Pennsylvania, 5.0 percent; California, 4.7 percent; Michigan, 4.6 percent; North Carolina, 4.6 percent; Wisconsin, 4.6 percent; Arkansas, 4.5 percent and South Carolina, 4.5 percent.

Economic Analysis: The U.S stock market Thursday will likely interpret the two-week, 40,000-person decline in initial jobless claims bullishly. The declines, combined with the jump in the Empire State Manufacturing Survey, provide additional evidence that the economic recovery, even if mild, is underway. To be sure, given the high 9.8 percent unemployment rate and large output gap, the nation's policy makers and business executives have an enormous task ahead of them to create opportunities for all, but Thursday's jobless claims and factory data indicate that aggregate demand is increasing – a positive development for U.S. GDP growth, and, ultimately, for corporate revenue and earnings.
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