I'm beginning to think reports documenting initial unemployment claims should come with antacids. Two weeks ago, we saw a sharp drop, caused largely by one-time factors, with claims reaching a four-year low. Last week, we saw the exact opposite, with claims surging back up.
The number of people who filed applications for unemployment benefits fell by 35,000 last week to a seasonally adjusted 353,000, marking the third straight week of sharp swings that reflects the government's difficulty in assessing employment levels in the auto industry. Auto manufacturers used to schedule brief shutdowns of plants every July to retool for new models, but the size of temporary layoffs has varied widely since the industry was bailed out several years ago. That makes the claims report especially volatile in July and less useful in gauging labor-market trends. Economists surveyed by MarketWatch had projected they would drop to 378,000 from last week's upwardly revised level of 388,000. A more accurate barometer of labor-market trends, the four-week claims average, declined by 8,750 to 367,250,000, the Labor Department said Thursday.
To reiterate the point I make every Thursday morning, it's worth remembering that week-to-week results can vary widely, and it's best not to read too much significance into any one report. This is especially true this month, given the volatility in July.
In terms of metrics, when jobless claims fall below the 400,000 threshold, it's considered evidence of an improving jobs landscape, and when the number drops below 370,000, it suggests jobs are being created rather quickly. We've only managed to dip below the 370,000 threshold three times in the last 16 weeks, though the four-week average offers at least some encouragement.
And with that, here's the chart showing weekly, initial unemployment claims going back to the beginning of 2007. (Remember, unlike the monthly jobs chart, a lower number is good news.) For context, I've added an arrow to show the point at which President Obama's Recovery Act began spending money.