Fewer people applied for jobless aid last week

The number of people applying for unemployment benefits plunged last week, reversing a spike from the previous week largely caused by harsh winter weather.

Applications for benefits dropped by 42,000 to a seasonally adjusted 415,000 in the week ending Jan. 29, the Labor Department said Thursday. They had surged in the previous week after snow storms in the South disrupted work and led to temporary layoffs.

Applications are well below their peak of 651,000, reached in March 2009, when the economy was deep in recession. Fewer than 425,000 people applying for benefits is consistent with modest job growth. But applications will need to fall consistently below 375,000 to signal a likely decline in the unemployment rate.

Last week's decline resumes a downward trend that took shape late last year. The four-week average, a less volatile measure, fell steadily in the last three months of 2010 to a two-year low of 411,250 in the week ending Jan. 1. That raised hopes that employers, operating with lean work forces, would soon step up hiring.

"The drop ... is definitely a positive," Dan Greenhaus, chief economic strategist at Miller Tabak, said. While applications are still at an elevated level, "the trend has generally been lower as the bulk of the firings are now behind us."

The average rose in January, mostly because of seasonal factors, such as the harsh weather and the layoff of temporary holiday employees. The average ticked up last week by 1,000 to 430,500. Many economists consider data in January to be less reliable because of seasonal fluctuations.

Unemployment applications reflect the level of layoffs, but can also indicate whether companies are willing to hire.

Despite the decline in unemployment benefit applications, employers have been slow to add jobs. One factor holding back job gains is that workers are becoming increasingly efficient and productive. That enables companies to produce more without hiring more workers.

In a separate report Thursday, the Labor Department said that productivity, the amount of output per hour worked, rose 3.6 percent in 2010, the biggest increase since 2002.

Employers will likely create a net total of 2.2 million jobs this year, according to a survey of economists by the AP. That's double the number that was generated in 2010.

Consumers are forecast to spend a little more freely, boosting economic growth to about 3.2 percent in 2011, up from 2.9 percent in 2010. But the economy would need to grow much faster — closer to 5 percent for a year — to substantially reduce unemployment.

Analysts project that the unemployment rate will fall to 8.9 percent by the end of this year, according to the AP Economy Survey.

The number of people on the unemployment benefit rolls fell by 84,000 to 3.9 million, the Labor Department's report said. Those figures are one week behind the data on applications.

That doesn't include millions more people who are receiving benefits under emergency federal programs enacted during the recession. About 4.55 million people received aid under the extended benefit programs in the week ending Jan. 15, the latest data available. Those programs provide up to 99 weeks of aid in the states with the highest unemployment rates.

Overall, nearly 9.3 million people are receiving unemployment aid. That's down from about 9.4 million the previous week.