We got more good news on the jobs front today as initial unemployment claims were unchanged. Well sort of, last weeks numbers were revised up from 348,000 to 351,000, and this week we were at 361,000 again. Still the consensus was looking for a rise to 355,000.
Relative to a year ago new claims are down 8.6%. The four week moving average fell to 359,000 a drop of 7,000 and is now 11.3% below year ago levels. The four week moving average is now substantially below the average level of the last 35 years.
The level of initial jobless claims has a very strong inverse correlation with the number of jobs created. These number suggest that February is going to turn out to be another very strong month for job creation. We will probably see more private sector job growth in February than the 257,000 jobs created in January.
How much that brings down the unemployment rate will depend on the change in the civilian participation rate. It is at extremely low levels, and normally there is a cyclical bounce to it. However this time around demographic forces (the retirement of the baby boomers) will probably limit how much it goes up.
Continuing claims, the regular ones paid by the states, dropped by 52,000 on the week to 3.392 million and are down by 460,000 or 11.9% over the last year. Given the very long duration of unemployment during this recession and its aftermath, many of those people still have not found jobs after 26 weeks and move over to the Federally paid extended claims. However, they also fell this week, by 69,000 and over the last year are down 1.045 million or 23.5%. That drop has been part of the story of the decline in the Federal budget deficit.
With the pick up in job creation, it is likely that many of the people no longer getting extended benefits are doing so for the right reason, they found a new job. However, there are probably many who are no longer getting them for the wrong reason, the clock on extended benefits simply ran out. Those people are going to be in a very precarious financial state.
This report is one more piece of the mosaic that shows the economy is very much back on the right track. More people working means higher incomes. Those incomes get spent, and in the process yet more jobs are created.
People with jobs tend to want a place of their own, and that is helping to soak up the excess housing inventory. We saw that yesterday in the existing home sales numbers, where the months of supply dropped to 6.1 months, which is an entirely normal level. That indicates to me that the fall in used home prices is just about over. We will probably start to see a pick up in new home construction as well this year (and even more in 2013). That in turn could have a very positive impact on the overall economy.
While we have had false starts before, barring another massive natural disaster like the Japan earthquake, I don’t think we are going to get knocked off track again.
Source: Zacks
