Markets Gain on Falling Unemployment Claims

Written By Brian Hicks

Posted January 18, 2013

Is the U.S. economy finally recovering? According to the Labor Department, applications for unemployment benefits dropped to their lowest level since early 2008 for the week ending January 12 this year. Just 335,000 applications—a decrease of 37,000—were filed.

Partly, of course, it could represent some difficulty with accurate numbers in the post-holiday season. Still, it’s an encouraging sign.

Bloomberg reports:

“The labor market is certainly getting better,” said Brian Jones, senior U.S. economist at Societe Generale in New York, who projected 345,000 claims. Even with the seasonal adjustment issues, “this is still a good report. Chances are claims remain at a fairly low level.”

The news reflected well in the market, with Standard and Poor’s 500 Index rising 0.2 percent to touch 1,476.19 on Thursday morning.

Typically, unemployment numbers are highest in the first few weeks of January—similar patterns were noted in 2007 and 2008. The four-week moving average of claims, however, is a more reliable metric, and that dropped, too—from 366,000 to 359,250.

Although some 29 states cited an increase in claims for continued unemployment, another 24 cited a drop. Nevertheless, new job creation remained fairly stable in December when 155,000 workers were added. The year’s average monthly additions totaled 153,000.

Higher payroll taxes could be a discouraging thing for consumers, though, and that is a problem for the economy in general. In the fiscal cliff deal, Congress allowed the payroll tax rate to go back to its 2010 level (6.2 percent) from its temporarily decreased rate (4.2 percent).

Meanwhile, job losses continue. American Express (NYSE: AXP) has said that it’ll let go of 5,400 workers over the year, while Morgan Stanley (NYSE: MS) expects to trim its investment bank by 1,600 positions.

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