An Unexpected Rise in Jobless Claims Shows Hiring Is Still Weak

Initial jobless claims are trending in the wrong direction. They unexpectedly rose 12,000 to 472,000 last week, the U.S. Labor Department said on Thursday, furnishing another sign of slack demand for workers in these initial stages of the economic recovery.

A Bloomberg survey shows jobless claims were expected to fall to 450,000. The more telling four-week moving average -- which smooths out anomalies for holidays, strikes etc. -- decreased just 500 to 463,500.

Jobless claims need 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 most companies to curtail layoffs and resume hiring.

The long-term unemployment situation also worsened last week. Continuing claims rose 88,000 to 4.571 million.

Falling Trend in Jobless Claims Stalls

The economic bulls, who argue that better quarters are ahead for the U.S. economy, will point to the roughly 25% decline in initial jobless claims from June 2009, when they totaled 604,000. Still, that was an abnormally high, financial crisis-induced level, and jobless claims are roughly unchanged from the start of 2010.

In addition to consolidation in the housing and retail sectors, another factor that has contributed to the tepid payrolls recovery is U.S. productivity: It remains high, rising at a 2.8% annual rate in the first quarter and increasing 3% in the past 12 months. As a result, while some companies have resumed minor hiring, other companies have not. And some are still trimming payrolls because their existing productive capacity can more than handle the demand increase so far in the recovery.

While low or modest hiring is a plus for most companies -- it implies contained payroll costs -- it would likely jeopardize the economic rebound if it persists long-term because sustained job growth has been historically required for the recovery to advance to a self-sustaining expansion.