New US jobless claims hovered near 1m last week, although the overall number of Americans collecting unemployment benefits fell as more businesses rehire workers.
Initial applications for unemployment aid totalled a seasonally adjusted 1m for the week ending August 22, the US Department of Labor said on Thursday. Economists had anticipated that claims would hit 1m, one week after rising back above that mark to 1.1m.
The federal Pandemic Unemployment Assistance programme, which offers benefits to the self-employed or other individuals who would not qualify for regular unemployment compensation, had 607,806 new claims on an unadjusted basis. That was up from 524,986 during the week before.
The number of unemployed people actively collecting state jobless aid eased for a fourth consecutive week. Continuing claims dropped to 14.5m from 14.8m for the week that ended August 15, compared with a peak of 24.9m in May and matching economists’ forecast.
However, unemployment remains historically high. During the 2008-09 financial crisis, continuing claims hit 6.6m.
“The data show that lay-offs remain widespread and underscore that a full recovery in the labour market won’t occur until the coronavirus is well under control,” analysts at Oxford Economics said.
While the decline in weekly claims has stalled in the past two weeks, continuing claims and applications for benefits across all government programmes “remain in [a] bullish downward trend”, said Markus Schomer, chief economist at PineBridge Investments.
The so-called insured unemployment rate, considered an alternative measure of joblessness, also fell, slipping below 10 per cent for the first time since early April. Continuing claims equalled 9.9 per cent of the workforce, down from 10.1 per cent.
The decline in claims comes with negotiations between the White House and congressional Democrats over further economic stimulus at a standstill.
President Donald Trump has signed executive orders seeking to extend supplemental jobless benefits and suspend the collection of payroll taxes. The emergency unemployment aid, which expired at the end of July, would restart at a lower level under Mr Trump’s order, but the timing remains uncertain. Economists have predicted that unemployed workers could begin receiving additional jobless aid around the end of August.
The Trump administration is also exploring whether to take executive action to send more assistance to workers in the airline sector, which could cut thousands of jobs in October when existing aid expires. American Airlines warned this week that it would have to eliminate 19,000 positions.
Economists believe the labour department’s monthly jobs report, due next week, will show an increase of 1.55m payrolls in August, which would reflect a slower pace of hiring for a second straight month. The US added almost 9.3m jobs between May and July as businesses emerged from shutdowns. With those gains, the US has clawed back 42 per cent of the 22.2m jobs lost in March and April.
The spread of coronavirus in the US south and west this summer has hindered the US economy’s rebound from the depths of virus-related lockdowns and severe outbreaks in New York and neighbouring states in the north-east. For states including Florida, California and Texas, a smaller rise in new infections and a decline in current Covid-19 hospitalisations have raised hopes that the recovery can regain momentum.
“The farther and longer we are from full employment, the more structural damage the economy faces,” said Luke Lloyd, investment strategist at Strategic Wealth Partners. He added: “Many businesses who were helped by the Paycheck Protection Program and were able to keep many of their employees on the payroll may have to face difficult decisions over the next couple of months.”
The pace of claims slowed the most in Florida last week, based on unadjusted advance figures. Texas and New Jersey also recorded fewer initial claims. That was partially offset by a higher number of weekly claims in other states, mainly California.
The US economy contracted by the most in postwar history in the second quarter of 2020 amid unprecedented shutdowns to combat the spread of coronavirus. Gross domestic product shrank at an annualised rate of 31.7 per cent, according to a second estimate from the Bureau of Economic Analysis on Thursday. A preliminary reading pegged the economy’s contraction at 32.9 per cent rate, and the GDP figure was expected to remain little changed at minus-32.5 per cent.
The jobless claims report showed there were 27m people claiming benefits in state and federal programmes as of August 8, down from 28.1m, according to unadjusted figures that are reported on a two-week delay. This tally includes PUA claims and another Cares Act measure that extended unemployment benefits for up to 13 weeks.
“While any improvement is a positive sign, the pace of declining claims will likely remain a concern for the Fed, who has continuously portrayed a gloomy outlook for the US economy. Many market participants believe the Fed has done what it can to support the recovery and the drumbeat for additional support on the fiscal side of the house is likely to get louder from the Fed,” said Charlie Ripley, senior investment strategist for Allianz Investment Management.
Jay Powell, chair of the Federal Reserve, announced on Thursday that the central bank would shift to an average inflation target — a move that will allow the Fed to overshoot its 2 per cent target to compensate for persistently low inflation.
US stocks were mixed in reaction. The S&P 500 was up 0.1 per cent while the tech-weighted Nasdaq Composite fell 0.3 per cent.