Today’s jobless claims report should dispel the notion that the labor market in the United States is getting significantly better. Initial jobless claims rose again to 551,000 from 534,000 the week prior. The 4-week average is still an exceedingly high 548,000 and continuing claims are over 6 million (All figures are seasonally-adjusted. Chart is below).

The silver lining is unadjusted claims. They came in at 443,000 last week, marking the seventh consecutive week in which unadjusted initial claims were below 500,000. As layoffs have declined in this business cycle, I do not expect this number to tick as high relative to the seasonal low around Labor Day as it usually does throughout the business cycle. What that means is that the seasonal adjustments may be overstating the jobless claims number, which I expect to fall well into the 400s by year-end.

My overall take on these numbers leading into tomorrow’s unemployment number is this: The labor market is extremely weak because of a paucity of jobs not because of a torrent of new layoffs. There are 5-6 job applicants for every job opening. This means that the unemployment should tick higher, reaching at least 10% before it starts to recede. When the unemployment rate does recede, the decline will be slow due to the ability of firms to increase the productivity of existing workers (record-low hours worked and a glut of available temporary workers precede any new hiring). This necessarily means that the economy will be vulnerable to exogenous shocks (think protectionism, terrorism, etc). So, for the foreseeable future, the employment market will be the missing link to full economic recovery.