Applications for U.S. unemployment benefits over the past four weeks dropped to a seasonally adjusted 335,500, the Labor Department said Thursday. That’s the lowest level since November 2007, which was one month before the recession began.
But while most companies have stopped cutting jobs, many remain reluctant to hire. That’s bad news for the roughly 11.5 million Americans who are unemployed and a major reason the unemployment rate is still so high four years after the recession officially ended.
“We have seen a disconnect between the level of hiring and firing,” said Bricklin Dwyer, an economist at BNP Paribas.
Unemployment applications are a proxy for layoffs. At the depths of the recession, in March 2009, weekly claims surged to 670,000. They have fallen steadily ever since and are now half that level.
The drop in layoffs helps explain why job growth has increased this year to an average of 192,000 net jobs a month, even while overall economic growth has stayed sluggish.
Net job gains show the number of people hired minus those who lose or quit their jobs. And when companies cut fewer jobs, it doesn’t take many new hires to create a high net gain.
The Labor Department says layoffs have averaged 1.6 million a month through June, fewer than a monthly average of nearly 1.8 million in the pre-recession year 2006.
Hiring hasn’t bounced back as fast. Employers hired an average 4.3 million people a month this year through June, well below the 2006 monthly average of 5.3 million.
Despite the drop in unemployment applications, net job growth slowed in July. Employers created just 162,000 net jobs, the fewest in four months.
The unemployment rate dropped to a 4 ½-year low of 7.4 percent last month
That is still well above the 5 percent to 6 percent associated with a normal economy.
So what will it take for more companies to begin adding new workers to their payrolls?
“Really not a mysterious question,” says Gerard McLean, CEO of Rivershark Inc., a developer of web applications in Englewood, Ohio. “We’re sitting here waiting for the promise of customers. With money. Really that simple.”
But most workers are waiting for a raise. Many haven’t seen their wages increase much faster than inflation. Many economists are optimistic that growth will pick up in the second half of the year. But most business owners can’t take the risk that comes with adding new workers without seeing more evidence.