WASHINGTON – Applications for unemployment benefits dropped last week to the second-lowest level this year, fresh evidence that companies are cutting fewer jobs.
First-time claims for jobless aid fell by 17,000 to a seasonally-adjusted 421,000 in the week ending Dec. 4, the Labor Department said Thursday.
The four-week average of claims, a less-volatile measure, dropped for the fifth straight week to 427,500. That's the lowest since August 2008, just before the financial crisis intensified with the collapse of Lehman Brothers.
Separately, the Commerce Department said businesses boosted wholesale inventories for the tenth straight month in October and sales rose by the largest amount in seven months. Strong demand from businesses restocking depleted store shelves has helped the economy grow after the recession and the latest data suggests that hasn't tapered off.
Still, Thursday's economic data was not all positive. Mortgage rates rose for the fourth straight week. The average rate on a 30-year fixed loan increased to 4.61 percent and the average rate on a 15-year fixed loan hit 3.96 percent, Freddie Mac said. The surge could slow refinancings and further hamper the housing market.
Unemployment claims have fallen steadily in the past two months. Applications dropped to 410,000 two weeks ago — the lowest level in more than two years — and they have been below 450,000 for the past five weeks. That is raising hopes that companies will soon accelerate hiring. The job market is also expected to benefit if Congress passes legislation that would extend tax cuts for two years and unemployment benefits through the end of next year.
Still, unemployment claims have only been below 425,000 for two of the last three weeks. Economists say they need to be below that level for an extended period to have any real impact lowering the nation's unemployment rate.
In November the economy added just 39,000 net jobs and the unemployment rate rose to 9.8 percent. Many economists say that was only a temporary setback and that the downward trend in unemployment claims, along with other strong economic data, suggest December will be a stronger month for hiring.
The latest report on jobless claims adds "weight to our view that the November employment report did not provide a very accurate reading on the strength of job creation," economists at RDQ Economics wrote in a note to clients. "We expect an upward revision to November payrolls and a more solid reading on job creation in December than we saw in November."
The weekly applications for unemployment benefits are considered a real-time snapshot of the job market. They reflect the level of layoffs but can also indicate whether companies are willing to add workers.
First-time applications peaked during the recession at 651,000 in March 2009, and then steadily declined to about 470,000 by the beginning of this year. Claims were stuck near that level for most of this year before moving down again in October and November.
The number of people continuing to claim unemployment, meanwhile, dropped sharply to just below 4.1 million.
But that doesn't include another 4.5 million people who are receiving extended benefits under an emergency unemployment insurance program set up during the recession. That total dropped by about 400,000 in the week ending Nov. 20, the latest data available.
The extended benefits expired on Nov. 30. But they are likely to be renewed for another 13 months under the agreement reached between President Barack Obama and congressional Republicans.
If it becomes law, the deal could boost economic growth next year to 4 percent, from a previous estimate of 2.7 percent, according to Moody's Analytics.
That would lower the unemployment rate at a faster pace next year, pushing it "well below" 9 percent by the end of 2011, according to Mark Zandi, chief economist at Moody's Analytics.
But unemployment will still be elevated for several years. Economists at Goldman Sachs project the jobless rate will be 8.5 percent by the end of 2012.
The proposed deal on taxes and unemployment benefits is also having an impact on mortgage rates. The average rate on a 30-year fixed loan is well above the 4.17 percent rate hit a month ago — the lowest level on records dating back to 1971.
Rates are rising after plummeting for seven months. Investors are selling Treasury bonds in anticipation that the tax deal will aid the economy, and that the stock market will become a more attractive place to put their money. That is raising the yield on Treasurys and mortgage rates tend to track those yields.
Associated Press Writers Martin Crutsinger and Janna Herron contributed to this report.