Employers are laying off fewer workers, a trend that normally suggests hiring is picking up. The January jobs report next week will show whether employers have begun to hire more freely or are still waiting for the economy to strengthen.
The number of people seeking unemployment benefits has reached a five-year low. Some employers, such as health care companies, restaurants and retailers, are hiring steadily. Yet, overall job growth remains modest. And the unemployment rate is the same painful 7.8 percent it was when Barack Obama became president four years ago.
The economy isn't growing fast enough to accelerate hiring. Flat pay and high unemployment are holding back consumer spending, which rose at a meager annual rate of 1.6 percent in the July-September quarter.
The economy expanded at a 3.1 percent annual pace in the same period, partly because companies stockpiled more goods, which boosts production. Most economists think growth dipped below a 2 percent rate in the October-December quarter because consumer demand remains tepid.
Another factor has been uncertainty about federal spending and budget deficits. Most companies don't seem worried enough to cut jobs. But many may not boost hiring until further progress on the budget is achieved. This month, Congress avoided the "fiscal cliff" in part by postponing automatic spending cuts. And this week a deadline for raising the government's borrowing cap was put off for three months.
Significant hiring gains are "unlikely . . . when there remains so much political uncertainty," said Paul Dales, an economist at Capital Economics.
First-time applications for unemployment benefits dropped 5,000 last week to a seasonally adjusted 330,000, the government said Thursday. That's the fewest since January 2008. The four-week average, a less-volatile measure, also fell to nearly a five-year low.
Applications are a proxy for layoffs. They fluctuated between 360,000 and 390,000 for most of last year. At the same time, employers have added an average of 153,000 jobs a month.
Weekly applications have now fallen below that level for two straight weeks. That suggests that job gains could accelerate.
Still, economists caution that the figures are particularly volatile in January. The government has difficulty adjusting its numbers to account for layoffs after the holiday shopping season. Layoffs typically spike in the second week of January as retailers and other employers cut staff. Then layoffs plummet in the following weeks.
Tom Gimbel, CEO of the LaSalle Network, a staffing and recruiting firm in Chicago, says he's seeing more demand for temporary and contract employees, but added that companies are reluctant to make more permanent hires, partly because they don't want to have to lay off workers if the economy falters.