Jobless benefit rolls drop sharply

June 18, 2009 2:27:40 PM PDT
On the surface, the government seemed to signal Thursday that more Americans are finding jobs: The number of people receiving unemployment aid fell for the first time since early January. But that doesn't necessarily mean more companies are hiring. Fewer people are receiving jobless aid largely because more of them have exhausted their standard unemployment benefits, which typically last 26 weeks.

Government figures, in fact, show the proportion of recipients who used up their jobless benefits in May topped 49 percent, a monthly record.

And while many analysts expect the recession to end by late summer, they warn that unemployment will stay high into 2010.

"It is unlikely that new hiring has picked up in any meaningful fashion," Joshua Shapiro, chief economist with MFR Inc., a consulting firm, wrote in a note to clients.

Other economists took a more positive view of the Labor Department report: They said it's consistent with other recent figures that suggest the economy is poised to recover from the longest recession since World War II by the July-September quarter.

The number of people receiving unemployment aid fell by 148,000 to 6.69 million in the week that ended June 6 - the largest drop in more than seven years. The decline broke a string of 21 straight increases in the number of people claiming benefits for more than a week, the last 19 of which were records. (A dip in continuing claims several weeks ago was later revised higher.) The jobless-benefit rolls "always stabilize or decline right around the end of the recession," wrote Abiel Reinhart, an economist at JPMorgan Chase & Co.

A group of economists from large banks, including JPMorgan, had forecast earlier this week that the economy will grow by 0.5 percent in the third quarter, after shrinking since last year.

Initial claims for jobless benefits rose by 3,000 to a seasonally adjusted 608,000 in the week ending June 13, above analysts' expectations. But the four-week average, which smooths out fluctuations, fell by 7,000 to 615,750. Figures for continuing claims lag behind those for initial claims by a week.

The four-week average is at its lowest point since mid-February, further evidence that the pace of job cuts is slowing.

In another encouraging sign, the Conference Board on Tuesday said its index of leading economic indicators rose for the second straight month in May after seven straight declines. The index rose 1.2 percent, the biggest gain since March 2004.

Conference Board economist Ken Goldstein said if those trends continue, a "slow recovery" should start before the end of the year, but he cautioned that the job market will take longer to rebound.

The financial markets finished mostly up Thursday. The Dow Jones industrial average added about 58 points.

Meanwhile, the average rate for a 30-year fixed mortgage fell to 5.38 percent this week, down from a seven-month high of 5.59 percent a week earlier, mortgage company Freddie Mac said. Rates had risen for three consecutive weeks, along with yields on long-term government debt, as investors worried that the growing federal deficit could trigger inflation.

The drop in the unemployment-benefits rolls could signal a slowing in the rise of the jobless rate, economists said, which reached a 25-year high of 9.4 percent in May. The decline also likely reflects the drop in first-time claims in recent months, meaning fewer people are joining the jobless-aid program.

Still, nearly 2.4 million people are receiving unemployment compensation under an emergency program authorized by Congress last summer and extended by the Obama administration's stimulus package. That program provides an additional 20 to 33 weeks of benefits beyond the standard 26 weeks of benefits.

Economists are closely watching the level of first-time claims, considered a timely, if volatile, indicator of the economy's health. The four-week average of claims has dropped by about 40,000 from its peak of nearly 659,000 in early April. But many economists say it needs to fall further. Bruce Kasman, chief economist at JPMorgan Chase & Co., said a drop in the four-week average to 580,000 by next month would be enough to declare the recession over.

Mark Zandi, chief economist at Moody's, said initial claims likely have been elevated by the bankruptcies of General Motors Corp. and Chrysler LLC, which have led to plant shutdowns and the closing of auto dealerships. Those factors also could cause fluctuations in the claims numbers in coming weeks.

Consumers and businesses have cut back on spending in response to the housing bust and the financial crisis. Companies have cut a net total of 6 million jobs to cut costs since the downturn began.

Still, job cuts are slowing. The Labor Department said employers eliminated 345,000 positions in May, only about half the monthly average of jobs lost in the first quarter.

More job cuts have been announced in the past week. MySpace, the social networking Web site owned by News Corp., said it will cut nearly 30 percent of its work force, or about 420 jobs. Cessna Aircraft Co., the nation's largest builder of corporate jets, said it will cut 1,300 jobs by August, on top of 6,900 layoffs that it previously announced.