Jobless claims’ plunge may signal better days

A plunge in jobless claims is raising hopes that the job market is picking up faster than was believed even a few weeks ago.

The latest news was Thursday's report that states received 305,000 new claims for unemployment insurance last week, down from 367,000 at this time last year, and the lowest in more than six years.

Claims had been falling to very low levels for three weeks, but the Labor Department had previously chalked part of the drop up to computer problems in a couple of states that delayed reporting of new claims.

With officials saying Thursday that the computers are fixed, economists are grappling with what happens next, now that the numbers are real.

"The best indicator of the monthly employment report is weekly jobless claims,'' Bank of Tokyo-Mitsubishi economist Chris Rupkey wrote in a note to clients. "It looks like the labor market kicked it up a notch in September. We will see what the monthly jobs report says next Friday, but 305,000 means a monster jobs number is out there on the horizon somewhere. It's coming. Bigger than 200,000 or a big 0.2 percentage point drop in the unemployment rate.''

That would reverse the trend of recent months, which has seen job growth slip even as the unemployment rate has drifted to a post-recession low of 7.3%. The Bureau of Labor Statistics has reported an average of 148,000 new jobs for each of the last three months, compared with more than 224,000 for the three months ending in April.

Barclays raised its estimate of new jobs created in September to 210,000 after the claims report. Brian Wesbury of First Trust Advisors also predicts 210,000 new jobs, the best gain in seven months, while Joel Naroff, of Naroff Economic Advisors, is at 223,000.

Fewer unemployment insurance claims prove that layoffs are slowing, and strongly suggest that hiring is also picking up, Naroff said. The normal pace of firings and failing companies in a 155 million-worker economy would produce more unemployment claims unless pe! ople were being hired so quickly, they never filed for benefits, he argued.

The optimism comes as a number of economic indicators, which ordinarily would help determine the pace of hiring, showed continued signs of sluggishness. The specter of a government shutdown or congressional refusal to raise the federal debt ceiling next month, raising the outside chance of a first-ever U.S. bond default, is a wild card, economists cautioned.

The economy grew at a 2.5% annual rate in the second quarter, the Commerce Department reported Thursday. That was 0.1% below the expected rate, and early third-quarter data point to only 1.3% growth, according to Moody's Analytics. It forecasts 160,000 new jobs for September.

The new optimism would vanish if Congress and President Obama hit an impasse on the budget, Naroff said.

"I always put that caveat in because I don't trust the crazies,'' he said.