Unemployment Claims Remain Historically High

 

The Wall Street Journal --- Unemployment claims fell slightly last week but remained historically high, signaling layoffs continue as the coronavirus continues to hamper the economic recovery.

New applications for unemployment benefits ticked down to one million in the week ended Aug. 22, the Labor Department. Initial unemployment claims remain well below the recent peak of about seven million in March but are far higher than pre-pandemic levels of about 200,000 claims a week.

The number of people collecting unemployment benefits through regular state programs, which cover most workers, edged down to about 14.5 million for the week ended Aug. 15. So-called continuing claims, which are released with a one-week lag, hit a high of nearly 25 million this spring but have declined in recent weeks, a sign companies are bringing back workers.

“We’re seeing gradual improvement, but we really need to underscore the word ‘gradual’ here. We’re only inching along in terms of the labor market’s recovery,” said Sarah House, senior economist at Wells Fargo Securities.

In a separate report released Thursday, the Commerce Department revised its estimate of second-quarter economic growth, saying gross domestic product fell at a 31.7% annual rate, slightly less than its earlier estimate of 32.9%, due to the effects of the coronavirus pandemic.

The second-quarter contraction was the sharpest in more than 70 years of record-keeping. But the annualized figure assumes the economy shrinks at the same pace for a year, which analysts don’t expect. Other recent data indicate output is growing in the third quarter.

Spending by American consumers drives about two-thirds of U.S. economic output, and the updated reading for consumer spending indicated it plummeted at a 34.1% annual rate in the second quarter, slightly less than the 34.6% drop previously estimated.

A key measure of corporate profits—after taxes, without inventory valuation and capital consumption adjustments—fell at an 11.7% annual pace in the second quarter, the report showed. That was after dropping 13.1% in the first quarter as businesses began shutting down across the country to contain the novel coronavirus.

Companies cut back on spending as profits plunged. Nonresidential fixed investment—which reflects business spending on software, research and development, equipment and structures—fell at a 26% annual rate in the second quarter from the first.

Among the firms cutting investment plans was Target Corp., which slashed its outlook for capital expenditures this year to between $2.5 billion and $3 billion, from an original plan for $3.5 billion.

“There are many potential challenges on the horizon, including uncertainties surrounding Covid-19, economic headwinds from historically high unemployment, uncertainty surrounding government stimulus and a contentious November election,” Chief Financial Officer Michael Fiddelke said in a conference call last week.

More recent figures suggest employers have continued to add workers despite a hazy economic outlook. Nonfarm payrolls grew by 1.8 million in July, marking the third consecutive month of hiring. The jobless rate fell last month to 10.2% after peaking near 15% in April.

The housing market has been a bright spot in the economy recently. The National Association of Realtors’ pending home sales index, which tracks signings for purchases of previously owned homes, rose for the third straight month in July, according to data released Thursday.

Economists expect the road to a full recovery to be long and uneven. Weekly applications for jobless benefits are much higher than the pre-pandemic record of 695,000.

“It’s massively concerning that five months into this crisis we are still seeing those levels,” said AnnElizabeth Konkel, an economist at the job site Indeed. “It’s just really pointing to how much economic pain there is right now, and I don’t really expect that to change anytime soon.”

Job postings on Indeed declined for two consecutive weeks in August, which Ms. Konkel said could point to an economic backslide. Indeed job listings for higher-wage occupations have declined more than for lower- and middle-wage positions. Such a trend could point to long-term uncertainty among employers, as those in higher-wage sectors might plan their head counts based on projections for business demand several quarters into the future, according to Indeed.

Job losses during the economic crisis have been widespread across industries and particularly steep in some services sectors, such as hospitality and tourism, which have been badly hurt by the coronavirus pandemic and lockdowns imposed to curb it.

American Airlines Group Inc. said this week that it would shed 19,000 workers by Oct. 1, a sign of the devastation coming for the airline industry as the summer travel season winds down and government funds run out. Delta Air Lines Inc. said it would furlough 1,941 pilots unless it reaches a deal with their union on other cost reductions.

The July 31 expiration of the separate, federally funded $600-a-week enhanced unemployment aid meant payments to those receiving support through regular state programs fell to levels approved by their states, which average a little more than $300 a week, according to the Labor Department.

President Trump signed an executive order Aug. 8 allowing states to tap disaster-relief funds to pay for a reduced $300 a week in enhanced aid on top of state benefits. More than half of states have now received federal approval to distribute the extra $300 payments. Delivery of the additional money will vary by state, and the Labor Department estimates it could take an average of three weeks before people start receiving the supplemental assistance.

An index of consumer confidence dropped in August to its lowest level since 2014, the Conference Board said Tuesday, which some analysts said could reflect growing consumer concerns about the diminished federal aid.

Weaker consumer sentiment also underscored Americans’ souring views about their labor-market prospects. The percentage of consumers in the Conference Board’s survey saying jobs are plentiful dropped to 21.5% in August from 22.3% in July. Meanwhile, those claiming jobs are hard to get rose to 25.2% this month from 20.1%.

Robin Emura, 64 years old, said she had to start economizing when the pandemic hit her freelance graphic-design business earlier this year.

“We used to put a nice dinner on the table every night. Suddenly we were forced to really budget,” she said. “We had to really watch our pennies and still are.”

Business has picked up slightly since the beginning of the pandemic, but the Flowery Branch, Ga., resident said she is bringing in about one-third as much money from her design gigs as she was before the coronavirus struck in March.

“It’s a hard climb getting back to where I was, and I don’t see it happening for probably at least another six months,” Ms. Emura said.

Since the extra $600 in unemployment aid expired at the end of July, Ms. Emura has collected $125 a week in jobless benefits. She expects that an additional federally funded payment of $300, which she sees as a reasonable amount, to provide “a little extra breathing room.”