Ailing US job market improves ahead of key report

Posted 11 7 2009 6:32PM

WASHINGTON (AFP) – US jobless insurance claims are trending lower from a March peak, official data confirmed Thursday on the eve of an anxiously awaited monthly unemployment report.

A pair of Labor Department reports highlighted the grim conditions on the job market, where nearly one in 10 in the labor force are out of work.

New claims for jobless benefits dropped more than expected to a seasonally adjusted 512,000 during the week ended October 31, the first decline following two weeks of increases and the lowest level since January 3, when claims stood at 488,000. Continuing claims also fell.

"The slow but fairly steady drop in unemployment insurance claims is signaling that a long and painful recovery is underway," said Andrew Gledhill at Moody's Economy.com.

"This drop brings the cumulative decline since initial claims peaked in March to 24 percent and about halfway toward the sub-400,000 readings that would be consistent with labor market stability," he said.

Separately, the department said nonfarm productivity soared a more-than-expected 9.5 percent in the third quarter to the highest level in six years as companies shed staff.

The official data came on the eve of the October labor market report. Most analysts expect the unemployment rate to rise to 9.9 percent, up from a 26-year high of 9.8 percent in September. Some suggest it hit the psychological barrier of 10.0 percent.

The last time the jobless rate reached double digits was in June 1983, at 10.1 percent, during recession.

Economists and the Obama administration have warned unemployment was likely to continue to rise even as the economy emerges from the worst downturn since the Great Depression.

The high number of jobless constrains consumer spending, which traditionally drives two-thirds of US economic activity, thus dampening momentum in a fragile recovery that began in the third quarter.

Since the start of the recession in December 2007, the number of unemployed has increased by 7.6 million to 15.1 million, according to official data.

Joel Naroff of Naroff Economic Advisors said the productivity data indicated businesses would not be hiring anytime soon.

"There is a downside to the drive for efficiency: Hiring is likely to remain limited for quite some time," he said.

"The labor market is still in a very grim state," declared Ian Shepherdson of High Frequency Economics.

"After three slightly disappointing weeks we were starting to worry a bit about the speed of the downward trend in claims, so these data are comforting, though not definitive," he added.

Theresa Chen of Barclays Capital agreed the overall trend was improving.

"While some of the fall in continuing claims is likely due to claimants exhausting benefits and spilling over to federal extended unemployment insurance, we view the steady decline of initial claims, along with the trend down in continuing claims and the insured unemployment rate, as signals of labor market improvement," she said.

Other reports this week suggested stabilization was underway.

Payrolls firm ADP said its survey showed the US private sector shed 203,000 jobs in October, the seventh month in a row that employment declines were smaller than in the previous month.

A purchasing managers survey by the Institute of Supply Management said the US services sector, which makes up the bulk of the nation's economy, expanded in October for the second month running but at a slower pace.

"Final reports before nonfarm payrolls hint at better jobs number, perhaps much better," said Robert Brusca of FAO Economics.

Moody's Gledhill, though, warned of the long, painful road ahead.

"Once jobs resume growing, it will take until 2012 before the economy has made up for this recession's losses," he said.