Happy New Year? Jobless applications drop

WASHINGTON (AP) - Far fewer people are applying for unemployment benefits as the year ends, raising hopes for a healthier job market in 2011.

Applications are at their lowest level since July 2008, the Labor Department says. They fell to 388,000 in the week ending Dec. 25, bringing the four-week average to 414,000. Until mid-October, the four-week average had been stuck above 450,000 most of the year.

Economists say the number of people applying for unemployment benefits predicts where the job market will go over the next few months - so much so that they use this data to help forecast economic growth.

"We're starting to see a pickup in job growth," says Conference Board economist Kenneth Goldstein. "We may even get to a point, conceivably by spring, where the consumer is going to say that it no longer feels like we're still in a recession." He expects the economy to generate 100,000 to 150,000 jobs a month by spring, up from an average 86,500 a month in 2010.

That's an improvement, but still not enough to cause big drop in the unemployment rate. To Paul Kasriel, chief economist at Northern Trust, fewer people applying for unemployment benefits suggests the unemployment rate will slip from 9.8 percent in November to 9.7 percent early next year; that would mean about 150,000 fewer unemployed.

The Conference Board's Goldstein says the unemployment rate might actually rise for a few months as an increase in job openings lures even more job seekers back into the labor market. He doesn't expect the unemployment rate to start dropping until mid-2011 and says it will finish the year above 9 percent.

The good news is that layoffs have fallen back to pre-recession levels. In October, 1.7 million people were laid off or fired - the lowest figure since August 2006, more than a year before the Great Recession started. Layoffs and dismissals peaked at 2.6 million in January 2009.

"We've stopped the losses, and things are kind of turning around," says Mark Christiansen, deputy director of the Workforce Development Center in Riverside, Calif., which has one of the nation's highest unemployment rates.

In past downturns, the economy didn't start generating jobs until applications for unemployment benefits consistently fell below 400,000 a week. But some economists say the old rule of thumb is outdated. Payrolls already were growing this year when applications were still well above 450,000 a week.

One reason: The labor force has grown by 25 million people over the past two decades. "You would expect the level of initial jobless claims to be higher the larger the labor force," Northern Turst's Kasriel says.

Another: Since the Great Recession, the unemployed, knowing their job search may be long and difficult, have been more likely to apply for benefits than they used to be. Previously, there were 1.25 laid-off workers for every person applying for benefits. Now, claims and layoffs are about equal, notes Zach Pandl, economist at Nomura Securities. That means each claim represents fewer laid-off workers.

Even if they've stopped cutting, employers have been slow to hire. In October, there were still 4.4 unemployed for every job opening.

"It's not really been the layoff rate that's been the problem in most of 2010," says Gary Burtless, senior fellow in economics studies at the Brookings Institution. "It's been the failure of employers to create vacancies."

But vacancies are expected to open up in 2011. A survey released this month by the Business Roundtable found that 45 percent of big company CEOs planned to add jobs over the next six months, up from 31 percent in the third quarter; just 18 percent planned to cut jobs. A survey by the staffing firm Manpower found that companies are more optimistic about hiring than they've been in two years.

"We're going to start to see jobs added. It's just going to take longer than anyone would want to get to somewhere more comfortable," says Manpower CEO Jeff Joerres "The first quarter is classically a slow hiring quarter. After that, we're going to see numbers that seem more like a recovery."

In Louisville, Ky., 103-year-old Atlas Machine & Supply is planning to add 10 to 12 workers to its staff of 200. The firm, which makes factory equipment, is bouncing back from 2009 - "the worst year we've had since the Great Depression," president Rich Gimmel says. The new jobs will be good ones, too - machinists earning $70,000 to $80,000 a year.