Drop in Jobless Claims Adds to Optimism About Broader Recovery

New unemployment claims, housing figures, consumer spending data all create reasons for optimism.

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New unemployment insurance claims fell from 393,000 to 388,000 last week, the lowest level since April 2. This is also roughly 12 percent below the initial claims figure one year ago.

The new figure out from the Labor Department today puts into context how far the nation has come since the recession—and how far it has yet to go. At the height of the economic crisis, weekly new unemployment insurance claims were well above 500,000 for over a year, and for most of the first half of 2009 were well above 600,000.

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Clearly, 388,000 represents significant improvement, but it is also well above levels associated with a healthy labor market. In 2006, when GDP growth and employment were both robust, the jobless claims figure was often near or below 300,000.

It can be tempting to cheer every downward blip in jobless claims, but it can also be an exercise in futility, as the figure can be volatile. However, the weekly figure has recently been creeping downward, slowly but steadily. The four-week moving average, which fluctuates less than the weekly figure, has now also fallen below 400,000—seen as a critical level for job market health.

The recent decline in jobless claims is "encouraging both for growth and the labor market," as Ryan Sweet, senior economist at Moody's Analytics, wrote in a statement this morning. Sweet also points out that initial claims have fallen in four of the past five weeks and are below their third-quarter average of 412,000. Sweet predicts that payrolls will add 115,000 jobs in November, a moderate improvement over October's 80,000 jobs added.

There are other reasons to be optimistic about the United States' near-term prospects for job growth. Consumer spending increased for the fifth straight month in October, and there is evidence that a strong holiday spending season is on the way. IHS Global Insight expects holiday sales to be 4.2 percent higher than last year. Gallup polling data support this prediction, with Americans currently estimating that they will spend an average of $764 on Christmas gifts this year, a 7 percent increase from last year.

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In addition, the ailing housing market showed one glimmer of hope today. Despite a small downtick in new home construction last month, building permits were up 10.9 percent, possibly presaging an increase in future construction. "When added to the drop in claims numbers, you can see that economic conditions are moving upward at an accelerating pace," Joel Naroff, president and chief economist at Naroff Economic Advisors, said in a statement.

Of course, it would be premature to declare a strong, sustainable recovery on the basis of a small spate of promising figures. Indeed, some experts say that payrolls will have to add at least 130,000 jobs on a monthly basis to keep up with population growth. And external factors, like the European sovereign debt crisis, could easily derail the fragile recovery.