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Latest Jobless Numbers Point To Happy New Year

If the old market saw about the trend being your friend is true, the recent improvement in several labor barometers adds ammunition to the optimists' argument about an imminent and long-awaited breakthrough in the labor market.

AP

The latest positive sign came Thursday morning, when the Labor Department reported initial jobless claims fell to 432,000, the lowest since September. Continuing claims were down to 460,250; as they have been every month since mid-August. (Get details of the report here)

That's prompted many analysts to predict monthly payroll data next week to show that the economy created jobs for the first time in two years.

"Given this steady drop, we remain comfortable with our call for a moderate increase in nonfarm payroll employment for December," says economist Zach Pandl of Nomura Securities.

Nomura revised its forecast to December from January, after November payrolls fell a much better-than-expected 11,000 decline.

Since then, other readings of labor market metrics have also underscored the trend.

The ISM purchasing managers employment index for the manufacturing sector has been above 50 for the past two months, which indicates an expanding labor market.

The percentage of consumers expecting more jobs to become available in the coming months rose to 16.2 percent from 15.8 percent, while the number expecting fewer jobs slid to 20.7 percent from 23.1 percent, according to the Conference Board's latest survey, which polled people up through Dec. 21. The group's employment index also increased in December, for the fourth straight month.

As encouraging as those signs may be, a positive payrolls number in December is a bit premature for other economists, even if they fall into the optimist camp.

"I think hiring will come back faster this time, beginning in January" says Ram Bhagavatula, managing director at Combinatorics Capital.

A recent survey of economists indicates that most expect positive payroll numbers in either January or February.

"We're getting close to break even," says David Jones of DMJ Advisors, who sees weekly claims at the 400,000 level as a reliable dividing line between growth and contraction. "It may be a little bit early."

Based on that model and with claims falling an average of 75,000 a month since their March peak of 674,00, that adds up to February at the earliest.

Economists also caution that ups and downs in the retail workforce because of the holidays make December and January data a bit cloudy.

"There's a lot of seasonality here," Robert Barbera, chief economist at ITG, told CNBC.

For that reason, economists like to average the months of December and January and February and March, in essence double checking the typically reliable four-week average. That won't be possible, however, until early April, when some say the economy could be churning out 250,000 a jobs a month.

Timing aside, the job market may finally be clear of headwinds for the first time since 2007. Employers have cut payrolls and inventories to the bone, which will mean an inevitable adjustment.

"Firms are stretching the productivity of the workforce beyond its limits," says Pandl.

Nevertheless, concerns about a largely jobless recovery have not been erased in all quarters.

Ken Goldstein of the Conference Board says the earliest payrolls will turn positive is March and increases from thereon will be modest at best, in the 50,000-75,000-a-month range.

"We haven't just gone through a business cycle, we've also gone through a major restructuring of the American economy," says Goldstein. "In the the new cycle, there's a limit to how much companies can sell and make and therefore how many employees they can bring on."

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  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.