Jobless Claims Dip to Lowest Level in Over Three Years

Europe still threatens recovery, particularly in manufacturing

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More good news from the jobs front: new jobless claims dropped by 50,000, to 352,000, in the week that ended on Jan. 14. That's the lowest that figure has been since 2008. A broader and longer-term look at jobless data suggests that the U.S. employment landscape is brightening.

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While one-week swings are rarely a reason to cheer or grumble, the long-term trajectory of jobless claims looks promising. In a commentary on the latest claims, Joel Naroff, president of economic consulting firm Naroff Economic Advisors, cautions, "Don't get too excited," noting that seasonally adjusting data on a week-to-week basis is difficult. But on a more hopeful note, he adds, "The longer-term trend is moving downward and is at a level that points to more job gains and a lower unemployment rate."

Large week-to-week shifts in jobless claims numbers are common. In the prior three weeks, new applicants for unemployment insurance jumped 21,000, fell 12,000, then jumped again by 27,000. In addition, a fall of 50,000 is a larger change than normal; the average week-to-week swing in jobless claims since the start of 2005 is around 13,000.

Several numbers in this week's report are reason to be hopeful that the massive U.S. economy is finally, slowly, righting itself. The insured unemployment rate is down 0.2 percent, from 2.9 percent the prior week. The number of continuing unemployment claims was also at 3,432,000, down by 215,000 from the previous week—the lowest level since September 2008.

In addition, jobless numbers show another promising trend, says Patrick O'Keefe, director of economic research at J.H. Cohn and former deputy assistant secretary in the Labor Department: The number of people exhausting their unemployment benefits "has been dropping for the better part of the year, and that's encouraging because some of that decline in the number of exhaustees is likely because long-term unemployed are starting to find work," says O'Keefe. As the job search can be particularly hard for long-term unemployed, that is good news; the mean duration of unemployment in the U.S. in December was 40.8 weeks, nearly 6 weeks longer than it was in December 2010.

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Of course, continuing claims in 2006 and 2007, when employment was much healthier, tended to be well below 3 million, illustrating exactly how far there is yet to go before full recovery. According to Robert Tipp, chief investment strategist for Prudential Fixed Income, the current jobless situation "is definitely not where everybody would like things to be, but there is a pretty comprehensive picture of things by and large moving at least in the right direction,"

Manufacturing is one area that remains vulnerable in that slow recovery. Employment in that industry has grown since the recession, but it is also particularly susceptible to the threat of the European financial crisis that still looms large.

"Manufacturing has been one of the areas where we have seen sustained growth during the jobs recovery," says O'Keefe. "And if we were to see it slow down, it would certainly take some of the momentum out of the recovery." As Europe is a key consumer of U.S. exports, says O'Keefe, a recession on that continent—which many economists agree is already occurring—could take a bite out of the U.S. jobs recovery.