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Still more improvement in the labor market

First-time claims for unemployment continued their descent last week, dropping to a mere 348K. It is now absolutely clear that there has been substantial improvement in the labor market. At last week's level, the ratio of claims to payrolls (what I term "workforce disruption" is now lower than at any time prior to 1997. We've rarely seen claims at such a low level relative to the size of the workforce. This must mean that firms have done just about all the cost-cutting that they are going to do. If firms have to change course because of something unexpected, it is much more likely to be in the direction of more hiring, not less, because they are already prepared for bad news. In other words, they are now vulnerable to an unexpected improvement in the economy. This is good.

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