Jobless Claims Dip, But Real Employment Gains Appear Stalled

Inital Jobless Claims Fall
Inital Jobless Claims Fall

Initial jobless claims declined by 14,000 to 460,000 last week, according to U.S. Labor Department data, and any decline in those numbers should be good news. However, because idiosyncratic events can cause wide fluctuations from week-to-week, economists tend to give greater weight to the four-week moving average for initial jobless claims, and the current average demonstrates why.

The four-week moving average rose 2,250 to 456,500, and it has essentially flat-lined for the past month after declining for much of 2010 so far. This sideways motion has led to concern that the decline in layoffs is slowing -- a pattern that, if it persists, would complicate efforts to lower the U.S.'s high 9.9% unemployment rate. And that's a slightly more troublesome labor market picture than what would be indicated by the initial jobless claims stat.

Further, the four-week moving average needs to drop below 400,000 during the next two quarters to give economists and investors confidence that commercial activity is increasing at a pace that prompts companies to curtail layoffs, and resume hiring.

Another Tell-Tale Stat: Continuing Claims

The continuing claims statistic is a longer-range indicator, and it still bears the unmistakable imprint of the 2007-2009 recession. Continuing claims did decline 49,000 to 4.607 million for the week ending May 15, but that's still far above what's normal for the U.S. economy.

To be sure, the overall economic picture in 2010 is one of improving conditions, and it's valid to include the continuing claims trend in coming to that conclusion: Continuing claims have declined by an impressive 29% in the past year. The problem is, they are still well above the 3.0 million to 3.2 million normal level.

Further, a robust economy would feature an even lower continuing claims total. During the 1980s economic expansion, continuing claims fell below 2.5 million. And during the 'Roaring 90s' boom, they fell below 2.0 million.

In short, while the current recovery has substantially lowered continuing claims, because the deep, long recession that began in December 2007 triggered so many lay-offs, the nation -- barring a sudden surge in hiring this year -- is not likely to see continuing claims return to normal levels for at least a year and a half, and probably longer.

And when one adds the roughly 4.6 million continuing claims to the 5.059 million Americans receiving extended benefits -- a program Congress instituted for those in high-unemployment-rate states who've exhausted their state unemployment compensation -- it is clear that the nation will need a period of intense job growth stretching over years to reduce unemployment claims to normal levels.