Ahead of the Bell: Unemployment Benefits

Weekly applications for US unemployment aid likely rose slightly after hitting 5-year low

Associated Press

WASHINGTON (AP) -- Fewer Americans have applied for unemployment benefits in recent weeks, signaling a decline in layoffs that could point to stronger job growth.

Two weeks ago, the number of applications fell to a seasonally adjusted 324,000. That's the fewest since January 2008.

Economists forecast that weekly unemployment claims rose 11,000 last week, according to a survey by FactSet. The Labor Department will release the report at 8:30 a.m. EDT Thursday.

Weekly applications have fallen nearly 8 percent since November. Applications are a proxy for layoffs. The decline indicates companies are cutting fewer jobs, which usually leads to more hiring.

The job market has improved over the past six months. Net job gains have averaged of 208,000 a month from November through April. That's up from only 138,000 a month in the previous six months.

While job growth has picked up, much of the gain has come from fewer layoffs — not increased hiring. Layoffs fell in January to the lowest level on records dating back 12 years, though they have risen moderately since then. Overall hiring remains far below pre-recession levels.

The unemployment rate has also fallen, although it remains high at 7.5 percent.

For hiring to increase enough to rapidly lower the unemployment rate, companies must gain more confidence in the economy. But some have held off adding new workers in recent months, possibly because of concerns about the impact of federal spending cuts and tax increases. And an increase in Social Security taxes could slow consumer spending, which drives nearly two-thirds of economic activity.

The Federal Reserve said last week that the federal government's policy changes are "restraining economic growth."

Still, even modest job gains could provide consumers with more money to offset the impact of the tax increase. Total wages rose 3.6 percent in April compared with a year earlier. That's comfortably ahead of the 1.5 percent inflation rate.

The economy grew at an annual rate of 2.5 percent from January through March, a big improvement from the anemic growth of 0.4 percent in the final three months of last year. But most economists expect growth will slow in the current quarter to 2 percent or lower.

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