Initial claims for unemployment insurance dropped last week to the lowest level since January 2008 indicating that improvement in the labor market will likely continue in the second half of the year.
Applications for jobless benefits fell 19,000 to 326,000 in the week ended July 27th, according to the Labor Department. Economists had forecast 345,000 claims. The prior week was revised 2,000 higher to 345,000.
The four-week moving average, considered a more stable measure of unemployment trends, fell 4,500 to 341,250, the lowest total since mid-May.
The average is approaching the level where job creation normally accelerates as employers stop most firings except for normal turnover and then begin to add workers. From 2003 through 2007 this gauge averaged 342,000 a week. In 2005, 2006 and 2007 the weekly claims average dropped to 321,000.The low of the past ten years was 286,500 in February 2006.
July is normally a volatile month as it is historically when auto-makers close assembly lines for new models, lying off workers who are rehired a few weeks later when the retooling is complete.
Consequently the Labor Department seasonal adjustments for the month tend to reduce the number of layoffs to smooth the data closer to long term trends. This year the manufacturers have either curtailed or forgone retooling and layoffs but the statistical adjustments remain, possibly producing a lower weekly number than the actual number of claims.
Chief Market Strategist