Jobless Claims One Economic Indicator That's Back to Normal
Today the Labor Department reported that initial claims for unemployment insurance hit a new four-year low last week, coming in at 348,000, 5,000 lower than the previous week's reading.
That's the lowest point since February 2008, and it is moving further into the territory of the booming mid-2000s. From 2005 to 2007, when the unemployment rate hovered between 4.4 and 5.4 percent, weekly jobless claims tended to remain between the upper 200,000s and the upper 300,000s, averaging around 322,000.
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"When we look at it now at the rates that they are, we, I think, are generally of the opinion, I think among economists, that the current levels are representative of normal turnover," says Patrick O'Keefe, director of economic research at accounting firm J.H. Cohn.
That "normal turnover" indicated by the jobless claims figure points to a more healthy labor market overall, says Joel Naroff, president and chief economist at Naroff Economic Advisors. The figure has been relatively stable in recent months, showing a slow but steady decline. Though labor market improvements are coming slowly, that lack of volatility is also promising, he says.
"What it's telling us is that we have had a clear firming in labor market conditions," says Naroff. "It's a slow decline, but it's also consistent with further declines in the unemployment rate."
Jobless claims are a rough indicator of layoff activity. So while fewer claims do not primarily drive economic growth, they are a sign that other things are going well. "Everything else is growing, a growing economy which requires more workers. So that greater [number of] workers reduces the terminations, increases the hiring, increases confidence, increases spending," says Naroff.
"When all those factors happen, the unemployment claims number goes down," he adds.
There's still plenty of room jobless claims to drop further, but just as a too-low unemployment rate could cause economic problems, like inflation, some new jobless claims every week is a good thing, reflecting healthy movement in the labor market as people change jobs.
"Even in a very tight labor market some jobs disappear. Some workers get laid off temporarily," says O'Keefe.
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While the continued steady decline in jobless claims is promising, the latest report contains a handful of other bright spots. No individual state reported a jobless claim increase of more than 1,000 people. Claims from newly discharged veterans and federal employees also dropped slightly.
In broader context, the jobless claims indicator shows how much improvement the labor market has seen since the worst of the economic downturn. In early and mid-2009, weekly jobless claims were often above 600,000, with continuing claims inching above 6.6 million. Now, continuing claims are around half that, at nearly 3.4 million.
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