WASHINGTON — For the second week in a row, fewer people filed new claims to collect unemployment benefits, a hopeful sign that businesses are feeling more confident the economy's recovery will continue.
The Labor Department reported Thursday that for the work week ended Jan. 17, new applications for unemployment insurance dipped a seasonally adjusted 1,000 to 341,000, lowest level since the end of December. The report said that the week before, claims fell 14,000, a sharper decline than the government first estimated a week ago.
In a second report, the Conference Board said its index of leading indicators, a key measure of economic activity, rose 0.2% in December, helped by relatively strong consumer spending and growing indications the job market is improving.
The increase in the index matched analysts' forecasts, and brought the gauge to 114.3%, 2.5 percentage points above the previous peak reached in May 2002.
The latest snapshot of jobless claims was better than analysts were expecting. They were forecasting a rise of around 2,000 for last week.
Meanwhile, the four-week moving average of claims, which smooths out week-to-week fluctuations, dropped 3,250 last week to 344,500. That was the lowest level since the week ended Jan. 27, 2001 — seven days after President Bush's inauguration.
The four-week moving average has been running below 400,000 for 16 weeks. Economists say when claims are below 400,000 it can be viewed as a sign the job market — which is still fragile — is turning a corner.
"We have been looking for a continuous improvement in the labor market and this is certainly a step in the right direction," said Carl Weinberg, chief economist at High Frequency Economics in Valhalla, New York.
Still, economists wants to see more improvement — namely stronger job growth.
In December, payrolls grew by just 1,000, disappointing analysts who were forecasting stronger growth. The economy has lost 2.3 million jobs since President Bush took office, something Democrats like to point out. Factory workers have been hardest hit, seeing millions of jobs evaporate.
Although the unemployment rate fell to 5.7% in December, the drop was mainly because thousands of people gave up looking for work.
Federal Reserve policymakers — who are keeping a close eye on the labor market — are expected to hold their target for a key short-term interest rate at a 45-year low 1% when they meet next week.
The Fed has leeway to hold interest rates near rockbottom for some time because inflation is under control. Economists believe the Fed wants to see the labor market much stronger before nudging up short-term rates. Against that backdrop, policymakers might opt to leave rates alone throughout this year and into part of 2005, some economists say.
Keeping rates low usually motivates consumers and businesses to spend and invest more, boosting economic growth.
Thursday's report also showed that the number of unemployed people collecting jobless benefits for more than a week rose 17,000 to 3.1 million for the week ended Jan. 10, most recent period for which that information is available. This suggests that jobs are still hard to find for some workers.
Economists believe that as companies' profits improve, they will feel even more comfortable about ramping up investment and hiring, two crucial ingredients to the recovery's staying power.
Leading economic indicators
The index of leading indicators, which foreshadows economic activity in the next three to six months, notched a ninth straight monthly gain in December.
"All indicators point to continued economic growth," Conference Board economist Ken Goldstein said in a statement. "More job gains than in November and December are in store for the early months of 2004."
Goldstein said consumer spending, which drove much of the recovery from the 2001 recession, remained relatively strong, while a robust recovery in business investment in equipment and software was on track.
The leading index has increased at a 4.7% annual rate from its most recent low in March, consistent with economic growth seen in the second half of 2003.
Goldstein said the index's continued rise signals strong economic growth — in the 5% to 6% annual rate range — should persist in the near term.
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