Initial jobless claims have fallen to pre-financial meltdown levels. Economists say the return to 2008 jobless claim numbers signals a return to a stronger job market. The substantial drop in claims trails a positive jobs report in month of January, which has sparked cautious optimism among economists that the recovery is gathering steam.
Claims dropped by 13,000 claims from the previous week. The four-week moving average decreased by more than 1,500 claims from the previous week. Jobless claims have continued to drop for the third straight week, showing that more people are entering the job market.
Phillip Levine, professor of economics at Wellesley College, said this week’s report indicates a slow return to normal.
“The good news is there are fewer people entering the unemployment pool and that indicates that businesses are starting to hire again,” Levine said. “Even in good times there is a normal flow of layoffs and this is not much higher than it would be during an extended period of good times, which shows things are really improving.”
Productivity has experienced slow growth in the fourth quarter of 2011 as labor costs increased by 1.2 percent, which could spur hiring if employers discover they can no longer squeeze the same profit out of fewer workers.
The most recent Mass Layoff Summary also shows layoff events and separations were at their lowest fourth quarter levels since 2005, showing that employers have stemmed the bleeding and are beginning to hire again.
Unfortunately the drop in jobless claims does not account for the number of long-term unemployed, who may be forced to drop out of the work force entirely as their skills degrade and become less marketable. The number of people claiming Emergency Unemployment Compensation, a program created in 2008 to support the long term unemployed, has continued to increase this month.
Nationally, there are still 8.8. million more unemployed workers than there are advertised vacancies, and that number does not align the unemployed with the occupations that are advertised for.
Though economists see the recent decreases in unemployment and jobless claims as evidence that more money is flowing into the economy, eventually affecting ailing sectors such as housing, they say this not the time declare victory.
Jesse Rothstein, associate professor of public policy and economics for Berkeley’s Goldman School, was guarded in his assessment of today’s drop in new jobless claims and last month’s unemployment rate.
“There are reasons to be careful. The rate is not falling all that fast. It could continue growing or it could be five to seven years until things have gotten back to normal,” Rothstein said.
Rothstein said the battle over legislation continuing payroll cuts and the extension of emergency unemployment benefits could yank the rug out from under the recovery. Congress is reaching a deal to continue the payroll tax cut and emergency unemployment benefits, but benefits would be shortened to 73 weeks from the original 99 weeks by this fall.