Initial claims for unemployment insurance (or jobless claims) fell to 502,000 last week -- a drop of 12,000 from last week's revised level (and 10,000 from last week’s unrevised level). That brought the four-week moving average down to 519,750 -- a decline of 4,500 from last week, and of 139,000 from its mid-April peak. That was the lowest level of initial claims since the first week of January (when the numbers were distorted due to the New Years Holiday).

As the chart below (from http://www.calculatedriskblog.com/) shows, that was probably the high point for this cycle. The decline has been quite smooth and steady -- unlike the experience of the last two economic downturns, where after an initial decline, claims leveled off and remained high for an extended period of time.

The fact that we are back to around the same levels we were in January points to the danger of doing a straight extrapolation from the level of initial claims to job losses in the overall economy. Back then we were dropping jobs at a rate of over 700,000 per month, now we are losing jobs at less than 200,000 per month. If history is much of a guide, we will not be adding jobs until we see in four-week average drop below 400,000 or so.

Still, things age going in the right direction, and at a reasonable pace. The problem is that it is still a long journey from where we are to where we need to go. If initial jobless claims were to continue to fall at the pace they have been (after revisions) for the last two months, we would get below that 400,000 around the Christmas holidays. That would indeed make it a Happy New Year.

However, even if we get to the point where the economy is adding jobs, we still have population growth to contend with. Due to the growth of the population, we need to be adding about 100,000 jobs a month just to keep the unemployment rate stable, let alone bring it down significantly. That is a tall order.

There was also some good news on the Continuing Claims front as they dropped by 139,000 to 5.631 million. That is 1.27 million below the peak set at the end of June of 6.904 million. However, that decline has to be taken with a grain of salt since continuing claims only tracks those in regular state unemployment programs, which run out after 26 weeks.

With the average duration of unemployment at 26.9 weeks, and the median at 18.7 weeks (both all-time records by a very long shot versus other recessions) regular continuing claims is clearly a flawed measure. After regular claims run out, people are then covered under emergency extended claims, paid by the Federal government as part of the stimulus package. Those, too, were in danger of running out for many until they were finally extended earlier this week.

There are now 4.043 million people in the two major extended benefit programs, a decline of just over 5,000 this week (actually two weeks ago, the extended numbers are reported with a delay). That decline is just as likely from people simply running out of their extended benefits as from them getting new jobs. The data should be interesting to look at in a few weeks to see if the numbers shoot back up as the new extension kicks in.

I am encouraged by the steady decline in the initial jobs numbers. They show that we are getting closer to the day when businesses finally, on balance, start to hire people again. That will provide people with the income and confidence in the future that we need to get the economy humming again. It would be the start of a virtuous cycle, as that extra income feeds back into the econo0my creating yet more jobs, and more income.

Right now, we are more likely in "no man's land," where the back of the vicious cycle has been broken, but a virtuous one has not yet taken its place. The hope of this happening could help out the retailers just in time for Christmas. However, I would bet that the discounters like Target (TGT) and TJ Maxx/Marshall’s (TJX) do better than the higher end stores like Abercrombie & Fitch (ANF) this year. Still, it's better to see an economy where people are shopping at Wal-Mart (WMT) than one where the only place doing any business is the Salvation Army.



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