The amount of new claims for unemployment benefits totaled 391,000 in the week ending December 25th, according to statistics released today from the Labor Department. This is the first week since mid July of 2008 that there were fewer than 400,000 new claims for unemployment benefits. In other words, there were 127 consecutive weeks with more than 400,000 new claims for unemployment benefits, but this streak ended last week. The fact that fewer people are filing for unemployment benefits has two key implications for the US economy.
First, federal and state expenses for unemployment benefits will go down. Federal expenditures for unemployment benefits have skyrocketed in the past two fiscal years. In 2009, jobless benefits totaled $120 billion – a 155% increase from 2008, according to statistics [.pdf] from the Congressional Budget Office. In 2010, jobless benefits totaled $162 billion – a 35% increase from 2009. With fewer people seeking jobless benefits in fiscal year 2011, a reduction of spending for these benefits is foreseeable.
Second, fewer new claims for unemployment benefits also indicates employment is more stable and layoffs are less frequent. The peak of new claims for jobless benefits occurred in March 2009, when there were 651,000 claims. The fact that new claims are more than 40% less than the peak shows an improvement for the US economy, albeit a sour one.
Despite these above implications, another aspect to consider is whether the holiday week influenced the reduced amount of new claims. Since labor departments were closed in respect of Christmas Eve last Friday, it is possible the shorter work week led to the reduction in new claims. Additionally, individuals may be more reluctant to file for such benefits during a holiday week, especially since many people travel or visit family through the holidays. Therefore, far-reaching claims based on the reduction of new claims in the week ending December 25th, such as reduced expenditures for unemployment benefits in fiscal year 2011, may not be firm.
However, to account for weekly fluctuations in the amount of new claims for unemployment benefits, the Labor Department also provides the average amount of new claims for benefits over the past four weeks, which is a more stable indicator. The four-week average was 414,000 last week. As a result, the four-week moving average also reflects a trend for a reduced amount of new claims. This trend supports the above implications, especially the likelihood for lower costs on jobless benefits in fiscal year 2011.
UPDATE: The Labor Department revised the amount of new unemployment claims in the week ending December 25th from 388,000 to 391,000.