With Fewer Workers Getting Fired, the U.S. Labor Market Tightens

Last week 300,000 people applied for unemployment benefits. That’s the fewest since May 2007, when the economy was still seven months away from a recession. It’s also about half the number of people who were filing for benefits at the peak of the recession in March 2009.

Jobless claim figures come out every week, and they tend to be pretty spiky, so the incremental data don’t tell us a ton. But the overall trend is certainly encouraging:

Initial jobless claims are now lower than they were during the Go-Go '90s.

We’re basically back to where we were in the late 1990s. Adjusted for population growth, the current level of claims is actually a good bit lower than what it was back then.

So fewer people are getting fired—always good news. But how does that translate into the economy? For one, it should help boost consumer spending. If you’re less worried about losing your job, you’re less likely to hoard your dough. Maybe you go to Home Depot this weekend to buy some new wallpaper, some flooring. Maybe go to Bed Bath & Beyond if you have enough time.

Although its signal may not be as useful as it used to be, jobless claims are still a very good leading indicator. As is the quit rate, which measures how many people are voluntarily leaving their job. The theory is that a high quit rate indicates a strengthening job market, since most people don’t quit their job until they have another one. Right now, the quit rate is just OK, without as much improvement as the jobless claim data.

People are still hanging onto their jobs rather than voluntarily quitting

Although Bloomberg data only go back to 2008, the quit rate was above 2.25 in 2006 and 2007, so there is still a way to go. But overall, fewer people getting fired and more people quitting their job point to a labor market that’s tightening. Maybe not as fast as it could, but the trend is going in the right direction.

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