Jobless Claims Fall to Eight-Year Low

Initial jobless claims fell sharply this week while continuing claims were also below expectations.

In total, initial unemployment claims fell to 289,000 from the prior week, well below economists’ expectations of 304,000. This brings unemployment claims to their lowest level since 2006. Jobless claims’ four week average fell to 293,500, again the lowest figure since 2006.

Initial jobless claims fell sharply this week while continuing claims were also below expectations.

In total, initial unemployment claims fell to 289,000 from the prior week, well below economists’ expectations of 304,000. This brings unemployment claims to their lowest level since 2006. Jobless claims’ four week average fell to 293,500, again the lowest figure since 2006.

Continuing jobless claims also fell, but by a much lower rate. In total, there were 24,000 less claims for the previously unemployed in the week ending July 26th. This may suggest the long-term unemployed are slowly re-entering the workforce, after many found themselves jobless and unable to find new employment after the financial crisis and massive layoffs of 2008 and 2009. In the years following the crisis, companies were slow to rehire workers, which has kept the unemployment rate at historically high levels.

U.S. stocks rose in early hours trading on the news.

Payrolls Gain for Six Straight Months

In addition to a declining rate of jobless benefits claims, the U.S. is seeing companies hire more workers. The Bureau of Labor Statistics recently reported that non-farm payrolls had risen by over 200,000 in July, although the unemployment rate remained at 6.2%.

At the same time, discouraged workers, defined as people who have left the workforce because they believe no jobs are available for them, fell by 247,000 to 741,000 from the prior year. Marginally attached workers, or part-time workers who would prefer to work full time, fell by 236,000 to 2.2 million.

Washington, New Jersey Buck Trend

While jobless claims fell throughout the nation, some states saw an increase in initial jobless claims, with the highest increases reported in Washington state and New Jersey.

Meanwhile, Michigan saw the largest total decrease in initial claims, followed by Ohio and New York. States with sharply decreasing unemployment trends reported fewer layoffs in manufacturing, wholesale trade, and transportation industries.

Strong Economic Data, Shrinking Deficit

The surprising decline in unemployment claims comes after a string of positive economic developments in recent weeks, with payrolls showing no significant decline in recent weeks. Earlier, it was reported that the private sector added 127,000 jobs in July while the ISM Non-Manufacturing Index, an indicator of economic activity in the service sector, rose to 58.7% in July, up from 56% in the previous month.

The ISM report indicated not only an expansion of the broader economy, but greater optimism from businesses who increased their new orders at the highest rate since August 2005. According to Anthony Nieves, Chair of the Institute for Supply Management, the readings from their recent survey “indicate that stabilization and/or improving market conditions have positively affected the majority of the respective industries and businesses.”

While employment and service activity have shown some relative strength, the U.S. has also had a shrinking trade deficit as the country imports less oil. June oil imports fell on a year over year basis to $96.41 on average, compared to $96.87 a year ago.

Strong Earnings Beat Estimates

In addition to positive forward-looking indicators such as the rising ISM and declining initial jobless claims, companies have reported higher earnings for the second quarter of this year. According to Bloomberg, 75% of companies beat analysts’ profit estimates, and 65% of companies beat sales expectations. While strong earnings have carried stocks for several quarters, revenues that beat expectations may indicate greater aggregate demand amongst American consumers in another indicator that the nation’s economy is continuing to improve.