Economists Divided on What Jobless Claims Say About the Labor Market

The current pace of jobless claims is relatively low compared to the previous recession, some economists say. However, others note that the rise in continuing claims is consistent with a higher unemployment rate than its current 5.0%, suggesting more trouble in the labour market than the latest figures might indicate.

Initial claims for jobless benefits in the United States fell to 365k in the week ending May 3, following a 38k rise last week to 383k, while continuing claims came in line with forecasts at 3.020 million, the Department of Labor reported Thursday.

Meny Grauman, an economist at CIBC World Markets, said the U.S. hasn't seen the same increase in jobless claims that is typically seen in the first months of a recession. There have been consistent declines, but not of the magnitude seen in the previous recession, he said.

Grauman said that between the 2001 recession and the recent financial turmoil, employers were more cautious in their hiring, resulting in a smaller job base overall, so companies now have less excess employment to shed.

Relative to the previous recession, the current pace of jobless claims is relatively upbeat, he said. However, the continuing claims figure indicates that people who have lost their jobs are finding it difficult to find new work.

Economists were looking for a total of 370k claims in this report after the previous week's 380k claims, which was upwardly revised to 383k. The latest figure is just below the four-week moving average of 367k, which moved up from the previous week's average of 364k.

Continuing claims fell to 3.020 million in the week ending April 26, down from an upwardly revised reading of 3.030 million in the previous week. Prior to the previous week, continuing claims had not crossed the 3 million mark for four years.

TD Securities economist Jacqui Douglas noted the four-week moving average for continuing claims is now 2.999 million, its highest level since May 2004, when the unemployment rate was sitting at 5.6% compared to the 5.0% rate as reported in the employment situation report last Friday.

"Today's jobless claims are consistent with a much higher unemployment rate than what we're seeing right now in the U.S.," she added. "We continue to expect the unemployment rate to rise by another percentage point or so by the end of 2008."

By Patrick McGee and edited by Stephen Huebl