U.S. layoffs may have stabilized

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In a market seemingly accustomed to bad economic news, today’s U.S. labour report stands out as a beacon of hope. A dim beacon, but a beacon all the same.

Applications for unemployment benefits fell by 12,000 last week, to a seasonally adjusted 409,000, the Labor Department said Thursday. It was the first decline in three weeks.

A strike by Verizon workers drove applications higher during the previous two weeks. The strike has ended and is no longer affecting applications.

“The special factor relating to the labor dispute at Verizon Communications appears to account for most of the recent rise in initial jobless claims,” wrote Michael Gapen, director, U.S. economic research at Barclays Capital. “Net of this special factor, the underlying trend in claims data has remained stable and suggests that labor market conditions have remained little changed in recent weeks.”

Applications have come down steadily from an eight-month high of 478,000 in April. Still, they typically need to drop below 375,000 to signal sustainable job growth. They haven’t been at that level since February.

The downward trend suggests employers aren’t stepping up layoffs amid renewed concerns about the economy’s health. A sharp reduction in growth has fueled fears that the economy could be at risk of another recession.

The government reports Friday on job growth in August. While the report is always important, economists will pay particular attention to the data to see if businesses pulled back on hiring in response to the plunge in stock prices.

Recent data suggests the July-September quarter is off to a better start. Employers added 117,000 net jobs in July, about double the pace of the previous two months. Consumer spending rose that month by the most in five months, partly because Americans bought more cars and spent more to cool their homes. And businesses ordered more goods from factories, particularly autos and airplanes, the Commerce Department said Wednesday

Still, hiring has slowed since earlier this year, and the unemployment rate remains high, at 9.1%. The economy added an average of 72,000 jobs from May through July, down from an average of 215,000 per month in the previous three months.

More jobs are needed to fuel faster economic growth. Higher employment leads to more income. That boosts consumer spending, which accounts for about 70% of economic growth.

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