Understanding the year-end unemployment drop

Mitchell Hartman Dec 22, 2011

Adrienne Hill: 364,000 people applied for unemployment last week. That’s down 4,000 from the week before and the lowest level since April of 2008. Sounds pretty good, but is it really

For more we go live to Marketplace’s Mitchell Hartman. Good morning, Mitchell.

Mitchell Hartman: Hi, Adrienne.

Hill: So, unemployment claims are down to the lowest level since way back in April 2008. Is it time to break out the champagne?

Hartman: We’re now down to just about the sweet spot where economists say you can expect to see the overall unemployment rate come down. It means significantly more employers are hiring than firing. But — I guess there’s always a “but” these days — this drop we’re seeing might not be entirely for real. I called up economist Bernie Baumohl on this point.

Bernie Baumohl: Well, there’s certainly a desire to believe these numbers reflect a real turning point in the labor market. But I have to tell you, I think it’s way premature to make that kind of a conclusion. These numbers are out during the holiday season and claims drop off in the final months of the year and then tend to increase again in the first months of the new year.

Hartman: So the reason for this is, some employers put off doing layoffs so they won’t ruin people’s holidays, and if folks do get laid off, they might wait until after New Year’s to file their claims.

Hill: And what is the hiring outlook for the new year?

Hartman: Well, it’s sort of murky. Here are the good signs: these unemployment claims, and the fact that over the past few months the economy’s been adding nearly 150,000 jobs a month. In November, unemployment fell to 8.6 percent.

On the other hand, economic growth is just really slow, and not picking up much. And there are lots of potential sinkholes out there — Europe, oil prices, and the delay in payroll tax cuts and unemployment benefits. All that could cut into consumer spending, and make employers hesitate before hiring that extra worker.

Hill: So it sounds like a wait and see sort of story.

Hartman: Yeah, it is.

Hill: Thanks so much Mitchell.

Hartman: You’re welcome.

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