The number of Americans filing for first time jobless benefits sunk to near a six-year low last week, suggesting that the nation’s economy is holding its path to recovery and giving another reason for the Federal Reserve to begin pulling-back on its stimulus efforts.
For the week ended August 10, the Labor Department reported that initial jobless claims dropped to 320,000 from a revised 335,000 the week prior. The agency had originally estimated the week ended August 3 to have 333,000 claims. Last week’s figure was the fewest new claims since October 2007. Economists were expecting claims to stick around 330,000 last week.
The four-week moving average, a less volatile measure of labor trends, was 332,000, down 4,000 from the prior week’s slightly revised number. Economists regard claims at 350,000 per week as moderate growth in the jobs market.
The Labor Department said that there was nothing unusual in the data and that no states were estimated last week.
Continuing claims, or the number of people already collecting state benefits, fell by 54,000 to 2.97 million in the week ended August 3. Continuing claims are reported at a one-week lag to initial claims.
The total number of people collecting benefits in all state and federal programs increased to 65,906 to 4.587 million for the week ended July 27. Total claims are reported at a two-week lag.
Historically, when initial jobless claims – a gauge of weekly layoffs – slow down, hiring accelerates. This has not necessarily been the case as the economy recovers from the recession a few years ago. The series of tax hikes and federal budget cuts earlier this year, known as the sequester, have kept employers walking a fine line with new hires. Earlier this month, the Labor Department said that unemployment fell to 7.4 percent in July from 7.6 in June, but the country only added 162,000 jobs during the month, far less than analysts expected.
At about 208,000 jobs additions each month, it will still take about 7 years to fill the gap created by the Great Recession, according to the Hamilton Project. The U.S. is only averaging about 193,000 new jobs each month so far in 2013.
Fed Chairman Ben Bernanke has previously said that the central bank has a target of 7.0 percent for the unemployment rate in making decisions about ending their policy of buying $85 billion each month in Treasuries and mortgage-backed securities. Thoughts of losing that stimulus have spooked the markets, thinking that the country can’t sustain even a modest growth trajectory without it.
The smaller number of claims has helped boost consumer confidence and consumer spending. A report from the Commerce Department on Wednesday showed that the consumer price index rose 0.2 percent in July, matching economist predictions after a 0.5-percent gain in June.
The markets are not responding favorably to the better-than-expected news from Washington, evidently taking it as a sign that the candy dish of QE3 could be taken away sooner, rather than later. The Dow Jones Industrial Average has slumped nearly 200 points, the S&P 500 is down 21 and the tech-rich Nasdaq is lower by 54 points in Wednesday morning trading.