Decline in the US Unemployment Aid Applications Indicating Job Growth

After a long period of stagnation now comes a ray of hope for the unemployed. The number of Americans applying for unemployment benefits fell to 340,000 last week from 363,000, a level indicating visible job growth in recent quarters.

This is lower than the median estimate of 345,000 predicted by 50 economists in a survey by Bloomberg News. A spokesman for the Labor Department said that there was nothing special in the data and they are yet to release it for the states.

“The recently lower initial claims readings have continued to suggest improvement on the layoff side of the labour market equation and should prove marginally positive for the May non farm payroll report” said Gennadiy Goldberg, US strategist at TD Securities in New York.

More than 4.7 million Americans were receiving the unemployment aid during the first week of May. There is still a shortage of 2.6 million jobs in the US compared to past economic slowdown. The possible decline in the number of people claiming unemployment benefits is because many people have given up looking for job. The government counts people as unemployed only when they are actively looking for a job. The steep fall in the rate seems to be a result of fewer layoffs than robust hiring.

Due to stringent fiscal policy the economy has slowed down and resulted in reduced consumer spending and it is also the reason for fewer layoffs by the employers. Since November, employers have added an average 208,000 jobs a month. That’s up from just 138,000 jobs a month compared to the previous six months.

To strengthen the employment rate to a normal level, companies need to gain more confidence in the economy, but many are hesitant to add workers due to concerns of deep federal spending cuts and tax hike.

Federal Reserve Chairman Ben Bernanke told a congressional committee on Wednesday that the job market is improving, but that higher taxes and government spending cuts likely will slow economic growth this year.

It was too early for the Fed to abandon its extraordinary efforts to boost economic growth. The Fed says it plans to keep its short-term interest rates near zero until unemployment is below 6.5% and it is buying $85 billion a month in Treasury and mortgage bonds to push down longer-term interest rates,” he added.

Ford Motors comes to rescue

On May 22nd Ford Motor Co said it is taking on more workers as increased demand prompts the second-largest U.S. automaker to add capacity to build 200,000 more vehicles annually in North America.
All of our products are performing quite strongly right now,” Jim Tetreault, Ford’s vice president of North America manufacturing, said in a telephone interview.

Real Estate gets a Boost

There is an estimated increase of 2.3 percent in the sale of homes as compared to the month of March. The median estimate of 76 economists surveyed by Bloomberg called for a gain to 425,000.

Demand for new and previously owned homes is sustaining progress in residential construction that is poised to keep fueling the economic expansion. Builders such as PulteGroup Inc. (PHM), home-improvement retailers like Lowe’s Cos. and lenders are benefiting from higher property values, lower mortgage rates and a pickup in household formation.

“We’re moving in the right direction,” said Kevin Cummins, an economist at UBS Securities LLC in Stamford, Connecticut, who projected a sales pace of 440,000. “It’s pretty much consistent with an improvement we’ve seen in the labor market and income.”

The Fed’s low interest-rate policies are intended to encourage more borrowing and spending, which boosts economic growth, with this rate soon the employment rate is expected to rise. This might get the American economy back on wheels.

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