The Wall Street Journal

21 January  2011

New claims for unemployment benefits dropped last week as the labor market’s gradual recovery continued in January.

The economy appears poised to gather momentum this year, as a separate index of leading indicators posted gains at the end of 2010.

The number of Americans applying for jobless benefits fell by 37,000 to a seasonally adjusted 404,000, the Labor Department said Thursday in its weekly report. The drop is a promising sign for the economy because it indicates that fewer firms are laying off workers.

Last week’s decline follows a sharp increase a week earlier. That jump may have been related to the holidays, which can distort data at the beginning and end of the year.

The four-week moving average for claims, designed to smooth out volatility, also declined by 4,000 to 411,750.

Continuing claims for unemployment benefits, those drawn by workers for more than one week, also fell by 26,000 to 3.9 million in the week ended Jan. 8. Continuing claims are reported with a one-week lag.

“In short, the trend in claims is clearly downwards,” Ian Shepherdson, a High Frequency Economics Ltd. economist, wrote in a note to clients. “It won’t be long before the jobs numbers look better.”

While the stream of layoffs is slowing, economic growth hasn’t sped up enough to spur robust hiring. Stronger job gains are necessary for consistent declines in the unemployment rate.

Faster growth may be getting closer. The Conference Board’s Leading Economic Index, which is designed to predict the economy’s direction, rose 1% to 112.4 in December, the group said Thursday. The index rose 1.1% in November.

“The economy now has some wind in its sails; however, it still faces some strong headwinds in the medium term,” said Ken Goldstein, an economist at the Conference Board. “Overall economic activity is likely to continue to gain momentum in 2011.”

The December jump was driven by gains in portions of the index, including those that measure building permits, new claims for jobless benefits and consumer expectations.

The Board’s index that gauges current economic conditions also ticked up in December, rising 0.2% to 101.9.

An index of lagging indicators rose 0.3% to 108.4 in December.