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The labor market continues to improve




Weekly claims for unemployment continue to decline, and the improvement in the past three years has been impressive, as the first chart shows, with claims falling from a high of 659K to 372K—a decline of 44%. The current recovery to date has been notable for its dearth of new jobs, to be sure, but the significant reduction in firings that shows up on this chart is strong evidence that businesses have undergone tremendous adjustments in order to adapt to new economic realities. The economy may not be growing very fast, but it remains very dynamic and adaptable, and that alone is reason to remain optimistic about the future.


This second chart shows the non-seasonally adjusted number of people receiving unemployment insurance benefits. It normally moves up around the end of each year, but today the number of people "on the dole" is 15% less than at the same time last year: 1.15 million fewer people are receiving unemployment benefits, and that is a very healthy trend. It may be politically incorrect to say this, but Congress' willingness to extend and extend unemployment benefits in recent years (via "emergency claims," a move without precedent in modern times) has undoubtedly contributed to the weak nature of this recovery. A person who is paid to not work has much less incentive to find and accept a job than one who is not paid.


The Challenger survey of announced corporate layoffs shows that the corporate world was quick to make some big adjustments—layoffs have been unusually low for the past two years. (The bulge last September was caused by planned troop reductions.) It also shows that the corporate world has not run into any unexpected difficulties, and that businesses in general are structured in a very "lean and mean" fashion. This has undoubtedly contributed to record levels of corporate profits, and it means there is plenty of room for corporations to expand hiring activities if the economic outlook improves. On that score, Washington holds some critical keys in the form of spending and tax policy. If spending can be cut back and corporate tax rates can be made more competitive, we could see some dramatic improvement on the new jobs front over the next few years.


Today's ADP estimate of December private sector jobs growth was so much higher than expected (372K vs. 206K) that most observers suspect it was a fluke caused by seasonal factors which can be difficult to get right at year end. But even if the reality is less than the ADP estimate, it is still likely that there was some substantial improvement in December relative to November. This holds out the promise for an upside surprise in Friday's jobs number, currently expected to show a gain of 175K private sector jobs.

Overall, lots of good news on the labor front today.

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