Economists: Initial Jobless Claims Are Sobering Sign

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The biggest one-week jump in initial jobless claims since March has some economists warning the struggling labor market is taking a turn for the worse amid an unrelenting pandemic.

Key Takeaways

  • The first unemployment data for December showed seasonally adjusted initial jobless claims increased by 137,000 last week—the largest week-to-week increase since March—to 853,000.
  • Initial jobless claims haven’t been this high since September.
  • Some economists say the increase, a ripple effect of the latest surge in COVID-19 cases, could signal a sobering turning point in the labor market recovery.
  • The figures show the urgent need for another government relief package to bridge the gap until vaccines roll out, some economists argue.

Initial jobless claims shot up 137,000 to 853,000 last week in the largest increase since the final week of March, when claims were skyrocketing amid the shock of pandemic lockdowns, according to seasonally-adjusted data released by the U.S. Department of Labor Thursday.

The 853,000—well above the consensus forecast of 743,000 cited by Moody’s Analytics—was the highest number for any week since September. Under a special program for self-employed workers and others ineligible for regular unemployment insurance, initial claims rose by more than 139,000 to about 427,600.

The first unemployment data for December, and the first since a discouraging November jobs report, has economists concerned a downward trend may hit the tenuous labor market recovery before a widespread rollout of COVID-19 vaccines can rescue it.

While initial claims numbers can be volatile—and may not be as reliable as they were before the pandemic—the four-week moving average rose to the highest level since October. The numbers reflect stay-at-home orders and other restrictions triggered by the latest surge in COVID-19 cases, economists said, and could portend a turning point. Many said it’s yet more evidence of the need for additional federal relief to bridge the gap.

“It’s going to be a chilly couple of months this winter in the U.S. economy,” said Sal Guatieri, senior economist at BMO Capital Markets.

As evidence of the link to restrictions, Guatieri noted the largest jump in claims last week occurred in California and Illinois, two states where the government increased restrictions on activities recently because of rising COVID-19 cases. Personal care services and restaurants—among the businesses most affected by social distancing requirements and consumer anxiety about the virus—have been hit particularly hard, he said.

Bracing for a Downturn

ING’s James Knightley, chief international economist, said the figures could even presage a decline in employment for the month of December. While growth in nonfarm payrolls has slowed dramatically, there have been no declines for any month since May.

“We need to be braced for a window of perhaps 3 or 4 months where restrictions will weigh on economic activity,” Knightley wrote in a commentary. “Consequently, we see a growing probability that employment declines in coming months and not just in those sectors focusing on consumer service who are most likely to experience direct restrictions.” 

Some economists cited the data to sound new alarm bells about the lack of another relief package from the federal government. Republican and Democratic lawmakers have been negotiating over a possible package on and off for months, but have yet to reach an agreement. One bipartisan group earlier this month proposed a $908 billion compromise deal including $180 billion to support unemployed workers over the next four months, but there are still divisions. 

The U.S. could be headed for a “double-dip recession”—a second recession that begins before recovery from the first is complete—if Congress does not provide some sort of relief before the end of the year, said Heidi Shierholz, senior economist and director of policy at the Economic Policy Institute, a liberal think tank.

“The response to the virus has been so poor, and it’s becoming clear in the labor market,” Shierholz said.

Funding Cutoffs Loom

Of particular concern, Shierholz said, is that a pair of unemployment aid programs funded by the CARES Act in March are set to expire at the end of the month, meaning millions of workers would be cut off from funding and many more would have no cushion if they were to lose their jobs during a downturn in the labor market this winter.

One of them, the Pandemic Unemployment Assistance (PUA) program for self-employed and gig workers, is the one under which 427,600 initial claims were filed last week. The other, the Pandemic Emergency Unemployment Compensation (PEUC) program, provides an extra 13 weeks of unemployment benefits to people whose regular state benefits have already been exhausted. Those benefits usually last up to 26 weeks.

All told, 12 million workers will be on one of the two programs when funding expires, according to November estimates from The Century Foundation, another progressive think tank.

Unemployment benefits are an effective stimulus, Shierholz said, because the recipients often inject the money back into the economy immediately on items like food, rent, and medicine. The lack of relief creates a cycle where less money in the economy means less demand for goods and services which leads to more layoffs and, in turn, even less spending.

“With COVID-19 case counts reaching new highs and many states reinstituting virus mitigation measures, job prospects in consumer-facing industries will remain weak for some time,” Ryan Sweet, a senior director at Moody’s Analytics, wrote in a commentary. “The sensible solution is to extend and enhance UI benefits in the near term to offset these lingering issues and the fiscal stimulus package now under consideration would do just that.”

The unemployment claims are “way beyond what they needed to be” but are not unexpected, said Slyvia Allegretto, a labor economist and co-chair of the Center on Wage and Employment Dynamics at the University of California, Berkeley. The only way to heal the economy fully is to decrease the number of cases of the virus, she said.

“The relief that was there initially is running out,” Allegretto said. “That’s the problem, not the unemployment. It’s the lack of relief.

"I've long said it’s a false trade-off between opening up the economy and fighting the virus. It’s finally catching up to us. We have to take care of the spread of the virus first.”