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Less Firing, More Hiring
Subject Unemployment Claims
Topic Employment, Unemployment, and Inflation
Key Words Unemployment Benefits, Economic Recovery, and Job Market
News Story

For the first time since February 8, 2003 claims for unemployment insurance have dipped below 400,000. As of July 19, total claims were only 386,000. The drop below 400,000 is generally interpreted as an indication of a strengthening job market. Taking this reduction in new claims into account, the total number of unemployed American workers receiving jobless benefits is at a three-month low of 3.6 million. A declining pace of lay-offs has contributed to this number, but Labor Department economists were quick to report that the job market is still very fragile.

This drop in new claims only hints at the fact that the economy may soon improve. Many large companies are still reluctant to make capital-spending investments and hire more workers given the uncertainty of economic growth. As explained by Oscar Gonzales, economist at John Hancock, "less firing is not the same as more hiring." The economy will not turn around substantially until the profit expectations of companies improve and positive hiring decisions are made. This may require more good news on the economic front such as the Fed's quarter point reduction in the federal funds rate and the President's tax cut.

Even though the labor market remains weak, the decrease in new claims is a positive indicator of recovery. As Gonzales concluded, "anything that points us in the right direction is good news and beats the alternative." Earlier this week the Labor Department reported a slightly higher consumer price index and increased industrial production. If this kind of news continues, it will bring the private sector back into the game.


(Updated August 27, 2003)

Questions
1.

What is meant by the term "discouraged workers"?

2. What policy would you invoke to continue the recovery?
3. Why is new capital-spending by the private sector important to the recovery?n?
Source Associated Press, "Jobless Claims Drop 2 Weeks in a Row," Florida Today, July 25, 2003.

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