While layoffs haven't been a key issue for the U.S. economy for years, a fresh sign of muted job-cutting may be deserving of celebration. The Labor Department says new applications for jobless benefits stood at 284,000 last week, the lowest level since early 2006. The positive development comes ahead of next week's release of the July employment report.
Automakers in high gear
It is unclear whether the drop reflects temporary factors, such as the desire to keep new car production rolling along this summer. The season is typically a time when plants are placed in neutral for retooling.
"A surge in motor vehicle demand over the past few months may have incentivized manufacturers to keep their plants open during historical shutdown periods in an effort to increase production and satiate demand," says Jeffrey Rosen, chief economist with Briefing.com.
Hiring on the rise
The low number of unemployment claims is not just a matter of lower job cuts. Recent readings of hiring have been looking up. The June jobs report indicated that 288,000 jobs were added by employers, led by business and professional services, retail trade as well as eating and drinking establishments. Economists generally think the next monthly jobs reading will show solid hiring, though perhaps not as strong as seen in June.
Based on statistics alone, Rosen says "the current trend in the initial claims level would suggest a gain of over 300,000 jobs in the July payroll report." That would be a jaw-dropping jump in hiring. But if the reported payrolls gain comes in below that number, as most expect, it would confirm that the drop in jobless claims is from temporary factors, Rose says.
Waiting for the wages bus
Americans continue to wait for a pickup in wage growth. Stuart Hoffman, chief economist for PNC, expects wages to rise through next year. "As the job market continues to tighten firms will need to raise wages to retain their current workers and hire new ones," he says.
Ironically, if positive signs do broaden and lure more Americans to search for employment, the impact could be to lift the unemployment rate. More people looking would enlarge the labor pool. But that would be a better kind of problem to have, in a sense.
In some past months, we've seen the jobless rate decline mainly because Americans gave up searching for work. While no one welcomes a rising jobless rate, an outbreak of optimism would be a welcome change for the U.S. economy. Such parting clouds have been a long time coming.
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