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Jobless claims drop, but clouded by auto shutdowns

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The number of newly laid-off Americans signing up for unemployment benefits last week, and those using this safety net over a longer period, both plunged. But the government figures released Thursday were clouded by difficulties adjusting for temporary shutdowns at auto plants.

Even if the recession ends this year as the Federal Reserve and many private economists expect, companies are expected to keep trimming payrolls. The unemployment rate will climb because companies won't be in any mood to hire until they feel certain a recovery is firmly rooted.

The Labor Department said new applications for unemployment insurance dropped by a seasonally adjusted 47,000 to 522,000, the lowest level since early January. Economists polled by Thomson Reuters expected claims to rise to around 575,000.

A department analyst said the drop in new claims didn't point to improvements in economic conditions. The second straight weekly decline reflected problems adjusting layoffs for temporary shutdowns at General Motors and Chrysler plants to retool for new models.

Weekly claims remain far above the roughly 325,000 that analysts say is consistent with a healthy economy. New claims last fell below 300,000 in early 2007. The lowest level this year was 488,000 for the week ended Jan. 3.

The unadjusted figures for last week actually showed that new claims rose by 86,389 last week, which would push the total to 667,534.

The department's seasonal adjustment process expected a large increase in claims from auto workers and some other manufacturers, the analyst said. Since that didn't happen, seasonally-adjusted claims fell.

Those adjustment difficulties also were behind a big drop reported for people continuing to draw unemployment benefits, the analyst said.

The number of people still collecting benefits fell by a seasonally adjusted 642,000 to 6.27 million, the lowest level since mid-April.

The unadjusted figures for continued claims showed an increase of 63,714. That data lags initial claims by a week.

"Seasonal adjustment problems are wreaking havoc with the layoffs data" and will continue to for another few weeks, said Richard Yamarone, economist at Argus Research Corp.

When federal and state emergency programs are included, the total benefit rolls are higher. More than 2.8 million are receiving unemployment insurance under the programs, which add up to 53 weeks of benefits on top of the typical 26 weeks. The data for the emergency programs lags the initial claims by two weeks. About 9.1 million people received jobless benefits the week ending June 27.

The layoffs picture is expected to be muddied by the auto shutdowns in the weeks ahead, the department analyst and private economists said.

The shutdowns typically occur in the summer, but took place over the last two months as GM and Chrysler LLC sought bankruptcy protection and implemented sweeping restructuring plans. That means the government data is more volatile than usual, making it harder to draw firm conclusions from the report about the direction of the economy and the pace of future layoffs.

The Fed, in a new forecast issued Wednesday, predicted the jobless rate would top 10 percent this year. It rose to 9.5 percent, a 26-year high, in June.

The recession, which started in December 2007 and is the longest since World War II, has snatched a net total of 6.5 million jobs.

Earlier this week, US Airways announced that it will cut 600 jobs this fall as it continues to struggle with the slow economy. Gannett Co. recently said it planned to eliminate 1,400 positions and credit card issuer Advanta Corp. says it's laying off half its work force.

Among the states, Michigan reported the largest increase in initial claims, with 12,144, which it attributed to higher layoffs in most industries. The next largest increases were reported by New York, Wisconsin, Indiana and Ohio. The state data lags initial claims by one week.

New Jersey reported the largest decrease, with 5,030, which it attributed to a shorter work week and fewer layoffs in the transportation, trade, service and warehousing industries. California, North Carolina, Kansas and Oregon reported the next largest drops.