Unemployment rolls take largest drop in 7 years

The number of people on unemployment insurance rolls dropped in the latest week for the first time since early January, while new claims for benefits rose slightly.

The report shows that job losses are easing after companies made deep cuts earlier this year. But nearly half of recipients at the end of last month had exhausted the 26 weeks of benefits provided under the regular state program without finding work, according to Labor Department data. That's a record and compared with about 36% in December 2007, when the recession began.

"It is unlikely that new hiring has picked up in any meaningful fashion," Joshua Shapiro, chief economist with MFR, a consulting firm, wrote in a note to clients.

The Labor Department said unemployment insurance rolls fell 148,000 to 6.69 million in the week ended June 6, largest drop in more than seven years and a sign the jobs picture might be improving.

The drop also breaks a string of 21 straight increases, the last 19 of which were record highs. A dip in continuing claims several weeks ago was later revised higher.

The department says new claims rose 3,000 to 608,000 the week ended June 13, higher than analysts' expectations. The four-week average, which smooths fluctuations, fell 7,000 to 615,750. Continuing claims data lags initial claims by one week.

The four-week average of claims has dropped about 40,000 from nearly 659,000 in early April, its peak for the current recession. The four-week average is at its lowest level since mid-February, further evidence that the pace of job cuts is slowing.

But many economists want to see it fall further. Bruce Kasman, chief economist at JPMorgan Chase, said Tuesday that a drop in the four-week average to 580,000 by next month would be sufficient to declare the recession over.

Kasman is chairman of the American Bankers Association's economic advisory committee, a group of economists for large banks that this week predicted the economy will recover in the third quarter. The Federal Reserve also expects the economy to begin growing again this year, as does the USA TODAY/IHS Global Insight Economic Outlook Index.

The drop in continuing jobless claims likely reflects the decline in first-time claims, meaning that fewer people are joining the rolls.

"Continuing claims ... ought to be falling now given that initial claims peaked more than two months ago," Ian Shepherdson, chief U.S. economist for High Frequency Economics, wrote in a note to clients.

The drop could also signal a slowing in the rise of the unemployment rate, which reached a 25-year high 9.4% in May. Many economists forecast the rate could reach 10% by the end of the year.

Millions of Americans are receiving unemployment compensation under an emergency federal program authorized by Congress last summer and extended by the Obama administration's stimulus package.

About 2.36 million people received benefits under that extended program the week ended May 30, an increase of more than 102,000 from the previous week. That's in addition to the 6.7 million people receiving benefits under the 26-week program typically provided by states.

Economists are closely watching the weekly level of new claims for signs the economy will recover by mid-summer, as many analysts predict.

"If the labor market is indeed stabilizing, we should see a marked decline in new unemployment filings in the weeks ahead," economists at Wrightson ICAP wrote in a note to clients this week.

First-time jobless claims are a measure of the pace of layoffs and are seen as a timely, if volatile, indicator of the economy's health. Initial claims stood at 390,000 a year ago.

Consumers and businesses have cut spending in response to the burst housing bubble and the financial crisis, sending the economy into the longest recession since World War II. Companies have cut a net 6 million jobs since the downturn began in December 2007, in an effort to reduce costs.

Still, job cuts are slowing. The Labor Department says employers eliminated 345,000 positions in May, about half the monthly average of jobs lost in the first quarter.

More job cuts have been announced in the past week. MySpace, the social networking website owned by News Corp., said Tuesday that it will cut nearly 30% of its work force, or about 420 jobs.

And Cessna Aircraft, the nation's largest builder of corporate jets, said Friday that it will cut 1,300 jobs by August, on top of 6,900 layoffs it previously announced.

Among the states, Pennsylvania reported the largest increase in initial claims for the week ended June 6. It attributed the increase of 6,861 claims to layoffs in construction, service and transportation. The next largest increases were in Florida, Ohio, California and New York.

Arkansas had the largest decrease of 1,206, which it attributed to fewer layoffs in the auto industry. The next largest drops were in Puerto Rico, Wisconsin, Arizona and Nebraska.