Unemployment claims fall dramatically

If people filing for unemployment claims is bad news, then the news from the labor market is certainly a whole lot less bad. Seasonally-adjusted claims have fallen dramatically in the past month or so (top chart) because not as many people are being laid off as would normally be the case around the end of the year (second chart, showing actual, non-adjusted claims—note the huge spikes that occur around year-end, and how small the spike has been this year). This recovery has been sluggish compared to others, but the decline in claims is now more impressive than it was 18 months into the recoveries that started after the 1990 and 2001 recessions.

One way to interpret this is that companies are laying off fewer people because they were already running a tight ship, having laid off tons of workers over the previous year in order to cope with uncertainty and a weaker economy. The economy was braced for the worst, in other words. That would imply that any unexpected uptick in the economy's health, now that uncertainty over future tax rates has been mostly resolved, should translate rather quickly into new hiring. That's been the story of this recovery: the reality has almost always proved much better than the fears. The employment situation should be improving in a positive fashion in coming months, with job gains coming in above expectations.