An important measure of layoffs hit its lowest mark since the Nixon administration, a sign of increasing momentum in the labor market and a possible hint at the extent of job growth for the full month of July.
The number of U.S. workers filing initial applications for jobless benefits fell by 26,000 to a seasonally adjusted 255,000 in the week ended July 18, the Labor Department said Thursday, a 41-year low. The week coincides with the period the Labor Department conducts surveys to assess the strength of the labor market for the month of July.
The most recent jobless-claims report shows how the job market has healed from the fragility of six years ago, when nearly 600,000 Americans a week were seeking such assistance. The low number of layoff has some economists optimistic that hiring strengthened further this summer.
“This week’s claims reading may have been exaggerated on the low side but there is certainly no sign of the labor market losing momentum,” said Jim O’Sullivan, economist with High Frequency Economics. “The message: Employment growth remains more than strong enough to keep the unemployment rate declining.”
But the latest data come with a big caveat: July figures tend to be volatile due to temporary layoffs and rehiring in the automotive industry. On the week of July 4, claims matched the highest level since February. The more reliable four-week moving average of claims, 278,500 last week, is little changed from the spring.
Broadly, claims have fairly consistently declined since the economic recovery began in 2009. And when adjusting for population growth, jobless claims have been at or near the lowest levels on records back to the 1960s for the past year. The labor force is more than 70% larger today than it was in the early 1970s, when claims were last this low.
The recent decline in claims has coincided with strongest pace of hiring since the late 1990s. Low levels of layoffs typically match with increasing payrolls, which is why claims data suggest July hiring could exceed June’s 223,000 increase when the next jobs report is released in early August. Barclays economists project that employers will have added 250,000 jobs to payrolls next month.
The better labor-market numbers come alongside other reports showing homes sales are at their highest level of the expansion and that consumers stepped up their spending this spring after a weak winter. It appears that growth has been re-energized after economy contracted at 0.2% pace in the first quarter. The Commerce Department will release its first estimate of second-quarter economic output next week. Many economists expect a growth rate of better than 2%.
Thursday’s report is one of the last readings of the labor market Federal Reserve policy makers will see before they meet next week. But the record-low level of claims likely won’t influence their decision for when to raise short-term interest rates, which have been near zero since December 2008.
Despite the improving headline figures, Fed Chairwoman Janet Yellen told members of Congress last week that she remains concerned about subdued wage growth and the number of Americans sitting on the sidelines of the labor force.
“While labor-market conditions have improved substantially, they are…not yet consistent with maximum employment,” she said. Maximum employment represents the level of joblessness the economy can sustain without stoking too much inflation due to labor shortages.
The unemployment rate last month was 5.3%. That was the lowest reading of the current expansion, but still above the 4.7% rate recorded in the month before the recession began.
No action on interest rates is expected next week. Fed officials have indicated they could start lifting rates as early as September, if the economy continues to show signs of steady growth. An robust July jobs report would only strengthen that case.
The latest numbers “should reassure policy makers that their objective of maximum employment is coming closer into view, and we expect the Fed will acknowledge this in next week’s policy statement,” economists from RDQ Economics wrote in a note to clients.
Thursday’s report showed the number of continuing unemployment benefit claims—those drawn by workers for more than a week—decreased by 9,000 to 2,207,000 in the week ended July 11. Continuing claims, which are reported with a one-week lag, are just above their lowest level since 2000.