Why New Jobless Claims Went Up

Last Updated May 20, 2010 10:26 AM EDT

The Labor Department reported on Thursday that new jobless claims for the week ended May 15 increased for the first time since early April, surprising economists who had expected a slight decline as payroll numbers improve. Does this signal that the hoped-for recovery in the labor markets has stalled?  Diane Swonk fills us in.

-Nelson Wang

Labor Recovery Still Slow
Labor markets are not improving fast enough to absorb the young workers who are entering the workforce for the first time, nor the discouraged workers who are now throwing their hat back in the ring after giving up on looking for a job earlier in the recovery. Indeed, at least a portion of the rise in claims for unemployment insurance can be attributed to a rise in the number of white-collar workers who have used up their severance and are now finally applying for it.

Uncertainty on the Rise Again
April's sharp slowdown in inflation -- core inflation dipped to a 44-year low -- coupled with the rise in jobless claims have validated the concerns of Ben Bernanke and more dovish members of the Federal Open Market Committee about the fragility of the recovery. Add to that the ongoing turbulence in Europe, a still unexplained 1,000 point dip in the Dow on May 6, and it is little surprise that uncertainty, which is the enemy of financial markets, is on the rise again. How can small investors find confidence in the economy when they don't trust the trading system itself?

That said, policymakers both in the U.S. and abroad seem to get it and are not willing to give up on the hard-won gains that they made to calm the panic during the height of the crisis. The Fed and the European Central Bank, in particular, will do all they can to stabilize the situation. Is it enough?

Time to Put Our Own House in Order

The recovery in the U.S. will probably survive, but still faces major hurdles. Moreover, those hurdles will worsen if we don't start learning from some of the missteps in places like Greece and actually put our own fiscal house in order. A better record on debt defaults and the reserve currency status of the dollar have bought the U.S. some much-needed time to deal with our problems. Let us not waste it.

Diane Swonk, chief economist at Mesirow Financial, talks to CBS MoneyWatch twice a week about the day's top economic news and developments. Her responses are edited for clarity and length.