On December 28, 1.3 million people lost their extended unemployment insurance because Congress decided not to renew the emergency aid program. Had a full-year extension of long-term jobless benefits been included as an amendment to the budget deal between Republican Rep. Paul Ryan of Wisconsin and Democratic Sen. Patty Murray of Washington, the nonpartisan Congressional Budget Office estimated the cost to be $25 billion, meaning the inclusion of a benefit extension would have added to the federal deficit.
The CBO also noted that the measure would have increased economic growth by two-tenths of 1 percent and created 200,000 jobs. According to a White House press release, the end of the long-term unemployment insurance extension will negatively impact 14 million Americans in 2014. There are also 4.9 million people whom the Center on Budget and Policy Priorities calculated will receive less unemployment aid than they would under the extension.
Last week, while unemployed Americans were facing a new reality, the number of initial claims for unemployment benefits dropped to a one-month low. The Department of Labor’s Bureau of Labor Statistics reported Thursday that jobless claims fell 2,000 to 339,000 in the week ended December 28.
As Pantheon Macroeconomic chief economist Ian Shepherdson suggested, the declines recorded in each of the past two weeks suggest that the usual end-of-year volatility surrounding the labor market has eased. Still, “the data likely won’t be free of seasonal distortions until the middle of this month,” he wrote in a research note seen by Bloomberg. “For now, we’re guessing that the trend in layoffs is flat-to-slightly downwards, but we cannot be sure.”
Early in December, initial claims for unemployment benefits ticked upward. After months as one of the only sources of strength in labor market, that uptick appeared to be cause for concern. Excluding the effects that Washington’s political drama had on jobless claims in the month of October, the number of Americans applying for unemployment benefits has been trending down for much of the year.
And, even though initial claims data, which serve as a proxy for layoffs, do not tell the whole labor story, the strength is encouraging. Yet after jumping 69,000 claims to 369,000 in the week of December 7 and rising 11,000 to 380,000 new claims in the week of December 14, initial applications began falling once again.
Last week’s numbers do show an increase in the four-week moving average. Jobless claims provide the first look at the employment situation for any given month, but since the weekly figures can be volatile, economists use the four-week moving average to understand wider trends. Last week, that average increased by 8,500 claims to 357,250.
Improvements in the labor market are often hard to see on a week-by-week basis. In the week ended December 14, the total number of people claiming benefits in all programs was was 4,458,816, an increase of 179,532 from the previous week. There were 5,408,010 people claiming benefits in all programs in the comparable week in 2012. Other unemployment data were mixed.
The number of people continuing to receive jobless benefits decreased by 98,000 to 2.83 million in the week ended December 21. Comparatively, those individuals who have used up traditional benefits and are collecting emergency and extended payments rose by about 58,000 to 1.39 million in the week ended December 14, the most recently available data.
With the end of the extension of long-term unemployment insurance, approximately 25 percent of jobless Americans will be collecting unemployment insurance payments, down from 38 percent, according to a report released by Democratic Rep. Sander Levin of the House Ways and Means Committee. The share of unemployed Americans receiving state or federal aid has never fallen below 30 percent since the government first began collecting the data in 1946, according to the report.
Economists predict that this policy change will force former recipients of emergency jobless benefits to either accept jobs they would not previously have considered or drop out of the labor force, actions that could lower the current unemployment rate of 7 percent by as much as half a percentage point.
A more complete picture of the December’s job growth will be available once the Labor Department’s Employment Situation Report is released this month. Changes in first-time applications for unemployment benefits are only half of the story — falling applications must be accompanied by increased hiring. Initial claims typically wane before job growth can accelerate, and first-time claims fell through much of 2013, prompting analysts to speculate for much of the year as to why hiring had not correspondingly gained momentum.
October and November marked a change in the trend of job creation. The economists who expected the labor market recovery to take giant steps toward the end of the year were seemingly correct. The jobs report released by the Bureau of Labor Statistics early in December provided evidence to support the recovery narrative.
U.S. employers added 203,000 jobs to their payrolls in November, beating expectations for a 180,000-job gain. The job gains made November the fourth straight month of solid hiring, helping the unemployment rate to fall to 7 percent, a five-year low.
Including the downward revision of October job growth to 200,000 from 204,000, the U.S. economy added an average of 204,000 jobs from August through November, an increase from the 159,000 per month added between April and July. “Companies have been holding on to workers and are now a getting a bit more active on hiring,” RBS Securities economist Omair Sharif told Bloomberg.
The improving economy and labor market prompted the Federal Reserve to reexamine its stimulus program. During a December 18 news conference that followed the Fed’s regularly scheduled Free Open Market Committee Meeting, Chairman Ben Bernanke announced the central bank would begin scaling back its $85 billion monthly asset purchases by $10 billion beginning in January.
Fed officials now expect the employment rate to fall as low as 6.3 percent by the end of next year, which compares to September’s projection of 6.4 percent to 6.8 percent.
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