By Bob Blandeburgo
In a continuing sign the economy is slowly recovering, the number of initial unemployment benefit claims was lower than analysts' estimates.
The number of claims fell by 24,000 to a seasonally adjusted 601,000 for the week ended June 6, according to the U.S. Department of Labor. Analysts were expecting the number to be 615,000, The Associated Press said.
Continuing claims for the prior week increased by 59,000 to 6.8 million, representing the 19th consecutive week that number has risen. The four-week moving average for continuing claims was 6.7 million, an increase of 57,250.
While the Labor Department's data is consistent with its report last week that indicated job losses are down, the unemployment rate is still at a 25-year high and is expected to climb. The consensus among economists is that the unemployment rate will top off around 10%.
"Initial claims are slowly declining, a development that typically comes near the end of a recession," said Abiel Reinhart, an economist at JPMorgan Chase & Co. (NYSE: JPM) told Bloomberg News. "We should continue to see payroll losses moderate but unemployment keep rising."
When the rate finally does top off, the reduction to the normal 5% rate could be a very slow process. U.S. Federal Reserve Bank Chairman Ben S. Bernanke the said the United States faces a "jobless recovery," or an upturn in which the economy and corporate profits rise, but almost no new jobs are created to compensate for jobs lost.
"On balance, the decline in initial claims is supportive of the argument that job destruction is beginning to slow within the U.S. labor market," said Ian Pollick, an economics strategist with TD Securities, Inc. "On the flip side though, the gallop in continuing claims as well as the increase in our four-week moving average for the continuing claims component suggests that the duration of unemployment continues to hover at record lengths, as the pace of job creation has come to a virtual standstill."
Such a standstill in job creation may be especially hard to come by in the manufacturing and construction sectors, as Money Morning reported on Wednesday.
The housing market may be showing signs of life, but employers could use the economic recovery as an opportunity to make up for missed profits by increasing its existing employees' workload. In the auto industry, workers who still have jobs will be left with the weight of returning American cars to their former glory.
"It will take a recovery in automobiles and housing for the manufacturing sector to once again prosper," Norbert J. Ore, chairman of the Institute for Supply Management Manufacturing Business Survey Committee, told The Kiplinger Letter, noting those sectors have shed more than 1.5 million jobs in the past two years.
"It's going to take five or six years for homebuilders and automakers to fully recover from this recession, and it may take longer," says Martin Hutchinson, a Money Morning contributing editor who has written extensively about the current downturn. "You're not going to see aggressive hiring in those industries for a good while."
News and Related Story Links:
- U.S. Department of Labor:
Unemployment Insurance Weekly Claims Report
- The Associated Press:
New Jobless Claims Drop to 601K; Retail Sales Rise
- Money Morning:
Unemployment Rate Hits 25-Year High, But Losses Narrow
- Bloomberg News:
U.S. Initial Jobless Claims Decreased Last Week
- Money Morning:
Is the U.S. Economy Headed for a "Jobless Recovery?"
- Money Morning:
"Hyper Local" Stats Show Housing Market Has Bottomed
- The Kiplinger Letter:
This Jobless Recovery Will Be Agonizing