Initial Jobless Claims Fall, but Continuing Claims Rise

It was a mixed-progress week on the labor front as initial jobless claims fell a better-than-expected 11,000 to 457,000, but continuing claims rose 81,000 to 4.57 million. Economists surveyed by Bloomberg had predicted initial jobless claims for the week ending July 24 would total 460,000. The four-week moving average also declined 4,500 to 452,500.

Though the initial claims decline looked like good news, the U.S. Labor Department cautioned that the statistic can be especially volatile during July and August due to normal, seasonal industrial shutdowns, especially in the auto industry.

Economists prefer to focus on the four-week moving average, as it smooths out the anomalies in the data caused by holidays, strikes and weather-related layoffs.

A year ago, initial jobless claims totaled 578,000, the four-week moving average was at 562,750, and continuing claims totaled 6.14 million.

Considerable Room for Improvement

Initial jobless claims would have to drop below 400,000 during the next two quarters in order for economists and investors to have confidence that commercial activity is increasing at a pace sufficient to prompt most companies to curtail layoffs and resume hiring.

Further, during an adequate expansion, jobless claims could fall much lower. During the 2002-2007 expansion, they dropped below 370,000 for more than two years. And during the Roaring 90s, initial jobless claims remained below 350,000 for years at a time.

States also reported 3.25 million persons claiming Emergency Unemployment Compensation benefits for the week ending July 10, the latest week for which data is available, a decrease of 230,304 from the prior week.

The highest insured unemployment rates for the week ending July 10 were in Puerto Rico, 6.9%; Pennsylvania, 5.1%; Oregon, 5.0%; New Jersey, 4.8%; Nevada, 4.6%; and Wisconsin, 4.6%.

On Wednesday, the Federal Reserve's Beige Book report confirmed that the U.S. economic recovery had slowed in the second quarter, and the jobless claims certainly provide supporting evidence of that. After falling during 2009 and through the first quarter of 2010, initial jobless claims numbers have flat-lined in the 450,000 to 455,000 range for the past three months.