Small-Cap Investor Forum

[MissionIR]

Drop in Unemployment Applications Points to Improving Job Market

For the first time in 9 months, the Labor Department reported on Thursday that the number of applications for unemployment benefits fell to a seasonally adjusted 381,000, a drop of 23,000. It was the lowest the number has been since February, and further indication that the overall job market is slowly getting better. In addition, the four week average for applications dropped to 393,250, its lowest point since April.

All of this strengthens the optimism generated in November when the government announced that the unemployment rate had decreased dramatically from 9.0% to 8.6%, its lowest point since mid-2009, although the official rate is often criticized for not reflecting the number of people who have simply given up looking or are grossly underemployed. Another concern is that people dependent upon extended unemployment benefits may soon lose them, putting a drag on spending.

Perhaps the more important fact is that the economy continues to generate jobs at a rate not seen in over five years. The private sector has been operating at skeleton levels, and any upturn in business puts pressure on companies to hire. The relatively strong holiday season, both for brick-and-mortar stores and online vendors, has clearly been an important factor, fueled in part by increased consumer confidence. A stronger job market is seen as a key underpinning of consumer confidence, and at least some economists are scaling up their economic growth predictions.

The biggest issues dampening some of the enthusiasm are the debt problems still facing Europe and the U.S. Progress in Europe is still viewed as tentative, with the threat of a sluggish Europe negatively affecting both business and credit in the U.S. In the meantime, government debt problems at both the state and federal level in the U.S. point to tightening benefits and government employment reductions, the latest coming from the U.S. Post Office, employer of over half a million postal workers.