Stocks Roar as Initial Jobless Claims Drop to 5-1/2 Year Lows

Andrew Klips  |

The number of Americans filing for first-time jobless benefits in the week ended July 27 sunk by 19,000 to the lowest level in five and one-half years, a fresh sign that the labor markets are improving.

In its weekly report, the Labor Department reported that initial jobless claims, a rough gauge of weekly layoffs, last week dropped to 326,000, handily beating economist predictions of an upward move to 345,000.  It was the lowest number of claims since January 2008.  Meanwhile, the week prior’s claims were revised upward from an originally estimated 343,000 to 345,000.

The four-week moving average, a less volatile barometer of the labor market, decreased 4,500 to 341,250.  That’s the lowest number in 10 weeks.

While the figures were impressive, economists are quick to note that July can often be a volatile month because of the July 4 holiday and planned shutdowns at factories for maintenance.  Fewer auto plants are closing for retooling in recent years than in the past, but the timing of the shutdowns can still affect initial jobless claims. 

Continuing claims, or those people already collecting state benefits, fell in the week ended July 20 to 2.951 million from a revised 3.003 million the week prior, exceeding expectations of a drop to 2.994 million.  Continuing claims are reported at a one-week lag.

The total number of people collecting claims from all programs dropped to 4.695 million from 4.849 million in the week ended July 13.  That’s nearly one million people fewer than at the same time in 2012.

The states posting the largest increases in claims last week were California (+7,723), Missouri (+635) and Kansas (+427).  Leading the decliners were New York (-14,966), Pennsylvania (-8,817) and Alabama (-6,019).

The report, coupled with a report from Automatic Data Processing on Wednesday, lends credence to an improving job market in the States.  Yesterday, ADP said that the private sector added 200,000 jobs in July, while also boosting its June figure to show 198,000 new jobs rather than the 188,000 originally estimated.

This, of course is all leading up to the much-anticipated non-farms payroll report and unemployment rate for July that will be delivered Friday morning by the Labor Department.  In June, the nation added 195,000 new jobs, matching May’s gains.  Economists are expecting a slowdown to 175,000 job additions in July and the unemployment rate to tick down from 7.6 percent to 7.5 percent.  The Federal Reserve has commented that it wants to see the unemployment rate at 7 percent as part of making its decision of when to end its latest iteration of quantitative easing.

Our country has been averaging a little more than 200,000 new jobs in each of the first six months of 2013, the best clip in 8 years, although still modest by historical standards.

Wall Street bulls are a buzz with the jobs report and additional data from the Institute for Supply Management that showed factory activity surged in July.  The ISM Manufacturing Index rose to 55.4% from 50.9% in June, marking the highest level for the index since August 2011.

The Dow Jones Industrial Average is riding 137 points higher in early trading, while the S&P 500 is up 18 points (breaking 1,700 for the first time ever) and the Nasdaq is up by 40 points.

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