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Why Jobless Claims May Not Be as Good as Market Thinks

For the second time in a week, a government unemployment report is sowing confusion — and may not be as positive as the markets think.

Spencer Platt | Getty Images

First it was last Friday's August payrolls report, which showed an unexpectedly large drop in the unemployment rate, that spurred confusion (and conspiracy theories). Now, a sharp drop in the pace of new jobless claims has also left people scratching their heads.

The Labor Department on Thursday said the number of people filing jobless claims last week dropped by a seasonally adjusted 30, 000 — a pretty sharp decline, and one that left the total number of filings at a four-year low of 339, 000.

Financial markets immediately rallied on the news. (Read more: Stocks Rise After Jobless Claims Hit 4-Year Low.)

While the government didn't note any unusual factors in the release itself, a Labor Department official did tell news agencies covering the release about a quirk which partly accounted for the larger-than-expected drop.

As Dow Jones reported: "A Labor Department economist said one large state didn't report additional quarterly figures as expected, accounting for a substantial part of the decrease."

The wording of that statement, along with the accompanying headlines, left the impression that one major state didn't turn in its figures.

Here's what actually happened. The state did report weekly jobless claims but did not process and report its quarterly claims number (when many people have to reapply for benefits for technical reasons as opposed to being newly laid off). As a result, there wasn't the expected spike in claims that normally happens at the start of the quarter.

It is unclear why that happened or how unusual that is. What is clear is that the expected spike in claims around the start of each quarter was smaller this time than usual. Coupled with the seasonal adjustment (that expected a bigger increase), that pushed down the headline figure.

In other words, the drop of 30, 000 last week had more to do with the lack of expected re-filings at the start of the fourth quarter than with any particular improvement in labor market conditions.

That also means that the decline which usually follows the spike won't be as pronounced this time around, so the headline tally of jobless claims is likely to rebound next week.

All told, these two weeks' worth of jobless claims will end up being more noise than signal. That may frustrate those who follow the series closely for clues into the health of the U.S. labor market. Coupled with last week's payrolls report, it is also likely to fuel perception that labor market figures in general can't be trusted.

The Labor Department appears to have had little choice in this matter, however; it couldn't estimate what the one large state would or should have reported. Still, it may have been able to avoid more confusion had it more clearly articulated that in its weekly press release.

And now, there is one state's labor department with plenty of explaining to do.

-By CNBC's Kelly Evans@Kelly_Evans We also have two NetNet Twitter feeds. Follow CNBCnetnet for the best of the days posts, including breaking news. Follow NetNetDigest for a feed of every single post each day.

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