Jobless benefits claims drop by 22,000

By Vicki Needham - 02/28/13 09:59 AM ET

Applications for unemployment benefits fell more than expected last week as employers are hanging on to workers amid budget gridlock in Washington.

First-time jobless claims fell by 22,000 to a seasonally adjusted rate of 344,000, the lowest level since June 2008, the Labor Department reported on Thursday.

The four-week moving average, which better reflects the direction of the labor market, fell to 355,000 from 361,750.

The figure is a reflection of layoffs, which usually drop as overall job growth picks up.

The government's February jobs report is due out next week.

Economists argue that the labor market is healthier when applications fall below 375,000.

But the hiring pace and rate of economic growth have not been fast enough to bring down the persistently high unemployment rate, which now sits at 7.9 percent.

President Obama warned this week that $85 billion in automatic spending cuts set to go into effect on Friday will hurt the economy, which is struggling to stay above water.

The Congressional Budget Office has estimated that the sequester would knock off 0.6 percent in gross domestic product and create upward of 750,000 job losses this year.

The Senate will vote Thursday on two bills that would provide alternatives to the scheduled cuts, but they are expected to fail. Obama will hold a meeting on Friday with congressional leaders to see if there is any agreement on how to proceed with the unpopular sequester.

Despite the gridlock over budget issues, the labor market is outperforming economic growth, which showed a sluggish increase of 0.1 percent in the final quarter of 2012, an improvement from the 0.1 percent contraction that was initially estimated.

During the four-day week shortened by the Presidents Day holiday, California showed the largest increase in applications, up by almost 27,000 with layoffs across all sectors, including the service industry.

The other states with increases were Connecticut (+1,747), Massachusetts (+883) and New Mexico (+5), while the largest decreases were in Illinois (-3,285), Kansas (-3,114), Pennsylvania (-2,865), Florida (-2,442) and Ohio (-2,265).