WASHINGTON – The number of Americans lodging new jobless claims plunged unexpectedly last week to the lowest level since February, bolstering hopes the economy may have finally shed the cobwebs of the 2001 recession.
While the Labor Department (search) on Thursday cautioned against reading too much into the improvement, saying July is always a volatile month, economists seized on the surprising strength in the job market as evidence the economy is on the mend.
"I think this puts a stake in the heart of those that claim recession is still with us," John Lonski, chief economist at Moody's Investors Service in New York.
The level of new claims, which gives an early reading on the resilience of the job market, dropped 29,000 to 386,000 in the week of July 19, far beneath Wall Street expectations for 413,000 applications, from a revised 415,000 the week prior.
It was the lowest level of new claims since the week of Feb. 8, and the first time since then that initial claims fell below the critical 400,000 mark viewed by economists as the sign of a soft jobs market. Claims had been above 400,000 for 22 straight weeks.
A Labor spokesman said it is not uncommon to see volatile changes in the series in July "because of traditional temporary layoffs in industries such as automobiles, textiles and apparel."
The unexpectedly steep drop boosted both the U.S. dollar and stock market, as investors welcomed the news as a sign the labor market could be bottoming. Treasuries, for whom good news is bad news, were staggered by the sharp drop in claims.
Analysts said the report was the first real sign the labor market may be rebounding from its post-recession depths, which pushed the unemployment rate climb to a 9-year high of 6.4 percent in June. But they warned it was still a bit too early to celebrate the end of the economic malaise.
"It suggests that we may have hit a peak in the unemployment rate but as (Federal Reserve Chairman Alan) Greenspan (search) suggested, we have to be careful of the July data because of distortions," said Ian Morris, chief economist at HSBC Securities.
"We need to wait to see what the underlying trend is over the next few weeks, but this is a very hopeful start for those economists looking for a bounce back in the second half," he said.
Steve Ricchiuto, chief economist at ABN AMRO, agreed.
"One week's number doesn't do it for me," he said. "The four-week moving average of claims is still high enough to suggest a flattish to weak payroll employment number," Ricchiuto said.
The fall in initial claims brought the average weekly rate of claims over the past four weeks to 419,250, down from the 424,750 average in the previous week. Some economists consider the four-week average a better indicator of the health of the jobs market and the economy because it smoothes out the weekly volatility.
The number of long-term unemployed dropped for the second week in a row, falling to 3.61 million in the week ended July 12, the latest week for which figures are available.