U.S. unemployment claims drop

Fewer people sought jobless benefits last week, mostly because U.S. automakers have skipped their usual summer factory shutdowns to keep up with consumer demand.
By CHRISTOPHER S. RUGABER and TOM KRISHER Published: July 13, 2012
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The number of people seeking U.S. unemployment benefits plunged last week. But a big reason is that automakers have skipped some of their usual summer shutdowns to keep up with demand, causing fewer temporary auto layoffs.

Economists expect the number of Americans seeking unemployment aid to go back up in coming weeks.

The auto industry's recovery has helped support the struggling U.S. economy. U.S. auto sales in the first half of the year jumped 15 percent over the same period a year ago. Sales of new vehicles surged in June. Automakers also began Independence Day promotions early, lifting sales at the end of the month.

The Labor Department adjusts the number of applications for unemployment aid to account for seasonal factors. But it underestimated this summer's drop in temporary shutdowns of auto plants. That distorted the seasonally adjusted data it released Thursday.

And that may largely explain why applications for unemployment aid tumbled 26,000 last week to a seasonally adjusted 350,000 — the fewest since March 2008.

“Take July with a grain of salt,” Jill Brown, an economist at Credit Suisse, said in a note to clients. The auto shutdowns “often cause extreme volatility.”

Automakers traditionally close their plants in the first two weeks in July to prepare them to build new models, and their employees often file for unemployment benefits. But Ford Motor Co. said in May that it would reduce its usual two-week closing to just one week. And Chrysler canceled the normal two-week shutdowns at three factories.

Applications for unemployment benefits measure the pace of layoffs. When they consistently fall below 375,000, it generally suggests that hiring is strong enough to reduce the unemployment rate. The number has fluctuated at or above that level since April.