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Drop in Monthly Jobless Claims Points to Stabilizing US Labour Market

H.S. Borji
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Drop in Monthly Jobless Claims Points to Stabilizing US Labour Market

The number of Americans filing for unemployment benefits rose last week, but the four-week average dropped to its lowest level since April 2006, adding further evidence the US labour market was becoming more stable.

US jobless claims increased 23,000 to 302,000 last week, the Labor Department reported today in Washington. The median estimate of economists called for new jobless applications to rise to 301,000 in the week ended July 26.

Jobless claims for the week ended July 19 were revised down to 279,000, the lowest since 2000.

The less volatile four-week average dropped from 300,750 to 297,250, the lowest level since April 2006, a sign improving demand was leading to more staff retention.

Weekly jobless claims track the number of Americans filing first-time claims for unemployment benefits. The reading is used to gauge current trends in the labour market. A drop in claims is generally associated with stronger hiring trends.

A stronger labour market is associated with higher consumer confidence, which according to the Conference Board rose to a nearly seven-year high this month.

The Conference Board’s barometer of consumer confidence improved markedly in July, rising from 86.4 to 90.9. That figure far exceeded the median estimate calling for a slight drop in the confidence indicator.

“Consumer confidence increased for the third consecutive month and is now at its highest level since October 2007,” said Conference Board director of economic indicators Lynn Franco in a statement released on Tuesday. “Strong job growth helped boost consumers’ assessment of current conditions, while brighter short-term outlooks for the economy and jobs, and to a lesser extent personal income, drove the gain in expectations.”

A more favourable job environment has translated into modest earnings growth. Average earnings have stagnated this year, having increased only 0.2 percent in the last few months. Average hourly earnings for all employees increased by just 2 percent over the last year, trending closely with consumer inflation levels.

However, a separate indicator – the employment cost index – showed total compensation costs rose 0.7 percent in the second quarter, the biggest gain since 2008.

On Friday the Labor Department will report on July nonfarm payrolls as well as average earnings growth. July was the sixth consecutive month job creation exceeded the critical 200,000 mark, according to a broad consensus of market analysts. The US economy in 2014 has added an average of 231,000 jobs each month.

The labour market reached a significant milestone this spring after it finally regained all of the jobs that were lost following the 2007-08 financial crisis. US unemployment peaked at 10 percent in October 2009, up from a low of 4.4 percent in May 2007. The 2007-09 recession destroyed 8.7 million jobs.

The unemployment rate, which has declined 1.4 percentage points over the past year, is forecast to remain steady at 6.1 percent in July.

The Federal Reserve has been pleased with the labour market’s recovery, but has also noted persistent underutilization of labour sources. The central bank reduced its asset purchase program by another $10 billion earlier this week and is expected to eliminate the program all together in October.

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