Jobless claims declined 26,000 for the week ending Jul 18 to 255,000. This is the lowest level experienced since 1973. During the prior period, jobless claims declined by 15,000 to a seasonally adjusted 281,000. Initial claims have remained below the key level of 300,000 since late February, its longest streak in 15 years. These are clear signals that the labor market may be strengthening in the near term.

Sustained Drop in Claims

However, there is some seasonal volatility. Auto plants generally shut down during this time of the year since they retool operations for new models. During the week ending Jul 4, jobless claims jumped 15,000 to 297,000 due to auto plants closing down in states including Michigan and Ohio. Further, school staff varies as the period coincides with summer holidays. Hence, it will be a prudent idea to keep an eye on long-term trends.

The four-week moving average evens out sharp fluctuations in weekly reports. Even in this case the underlying trend looks positive. The 4-week moving average edged down to 278,500 from previous week's unrevised average of 282,500. The average level of jobless claims has hovered near this mark since early April, indicating employers are retaining their staffs despite the odds.

Payroll Additions to Rise

An upbeat jobless claims report bolstered the view that nonfarm payroll additions for the month of July may exceed June's figure of 223,000. Analysts believe that employers will add around 250,000 jobs in July. Overall, the U.S. economy has been able to add an average 208,000 jobs a month in 2015.

This positive report on labor market also comes in at a time when the unemployment rate has hit a 7-year low. Unemployment rate came in at 5.3% in June. The number of long-term unemployed also decreased by 381,000 to 2.1 million in June. Further, the U-6 rate dropped to 10.5% in June, its lowest level since Jul 2008.

Hiring had already gained traction in both manufacturing and service sectors last month. Private sector hiring increased at the fastest pace in six months in June. According to the Automatic Data Processing, Inc. (ADP – Analyst Report), 237,000 private jobs were added last month, higher than market expectations of 220,000 jobs. The robust pace of growth indicated the US labor market “remains in high gear,” according to the report.