First-time claims for unemployment benefits showed a substantial decrease in the week ended July 4th, according to a report released by the Labor Department on Thursday, with jobless claims falling below the 600,000 level for the first time since January.
The report showed that jobless claims fell to 565,000 from the previous week's revised figure of 617,000. Economists had been expecting a more modest decrease to 603,000 from the 614,000 originally reported for the previous week.
With the bigger than expected decrease, weekly jobless claims fell to their lowest level since coming in at 535,000 in the week ended January 10th.
However, the steep drop in jobless claims was partly due to the early closure of auto plants, which historically shut down in July for retooling and clean up.
Peter Boockvar, equity strategist at Miller Tabak noted, Because Chrysler and GM had plant shut downs over the past few months due to their bankruptcies and just restarted them, we aren't going to see the seasonal July shutdowns.
Thus the claims data was skewed lower artificially, Boockvar added.
At the same time, it is worth noting that the early plant closures likely helped to drive initial claims higher earlier in the year.
The Labor Department also said that the less volatile four-week moving average edged down to 606,000 from the previous week's revised average of 616,000.
On the other hand, continuing claims, which measure the number of people continuing to claim unemployment benefits, rose to 6.883 million in the week ended June 27th from the preceding week's revised level of 6.724 million.
With the rebound, continuing claims once again rose to a new record high after seeing some stabilization in recent weeks.
Boockvar said that the increase in continuing claims is evidence that while some people's claims are running out, more people are filing initially and still many are having a tough time finding new jobs.
The labor market has been a significant source of concern in recent months, with last week's monthly employment report from the Labor Department showing a much bigger than expected decrease in employment in the month of June.
The report showed that non-farm payroll employment fell by 467,000 jobs in June following a revised decrease of 322,000 jobs in May. Economists had expected a decrease of about 365,000 jobs compared to the loss of 345,000 jobs originally reported for the previous month.
With the bigger than expected decrease in employment, the unemployment rate edged up to 9.5 percent in June from 9.4 percent in May.
The increase lifted the unemployment rate to its highest level since a matching rate in August of 1983, although it was below economist estimates of 9.6 percent. The unemployment rate has not been higher since it was at 10.1 percent in June of 1983.
Last week, White House Press Secretary Robert Gibbs said that although the President's economic stimulus and recovery package is working to slow the rate of job loss, the unemployment rate is likely to hit 10 percent in the next few months.
In the next two to three months I think it's quite clear that we'll hit that number, Gibbs said. You've got to create about 150,000 jobs a month simply to have the rate stay at the level that it was the previous month.
He added, So, yes, I think . we're definitely headed toward 10 percent.
Gibbs stressed the seriousness of the financial and economic crisis facing the country as he noted that it was likely to take time to recover.
Meanwhile, Republicans have used the disappointing employment data to launch a full-scale offensive against the Obama administration's economic stimulus plan.
Releasing several statements and videos, members of the GOP have used the numbers as evidence that the stimulus is not working and have called for the implementation of a GOP plan.
At a time when Americans are looking to Washington for leadership, the trillion-dollar 'stimulus' isn't working, House Minority Leader John Boehner, R-Ohio said last week.
Americans were promised the 'stimulus' would keep the unemployment rate from going above eight percent. It's now at 9.5 percent, and rising, Boehner added. Where are the jobs?
Republicans are calling for a stimulus more focused on helping small businesses.