Friday, June 19, 2020
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‘It’s not clear why claims are still so high.’
Initial jobless claims continue to be the most concerning piece of U.S. economic data.
On Thursday, we learned that another 1.51 million Americans filed first-time claims for unemployment insurance. Over the last 13 weeks, more than 45 million Americans have filed for unemployment insurance.
And while the speed with which the economy slowed down in February is without precedent, the May jobs report showed some signs of a recovery in the labor market.
But Thursday’s report shows a persistently high number of American workers still turning to unemployment for the first time. And this casts doubt on how quickly the labor market will indeed turn around and resemble anything like what prevailed when the year began.
“It’s not clear why claims are still so high,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics in an email on Thursday.
“[Is] it the initial shock still working its way up through businesses away from the consumer-facing jobs lost in the first wave, or is it businesses which thought they could survive now throwing in the towel, or both?
“Either way, these are disappointing numbers and serve to emphasize that a full recovery is going to take a long time.”
And while initial claims have declined each week since late March, the rate of deceleration has slowed considerably. Continuing claims — which tracks those eligible for unemployment insurance who file for continued assistance in a given week — also remained elevated last week, tallying 20.54 million against 20.61 million the prior week.
“[Thursday’s] numbers suggest that the reopening story may not be generating as much momentum for job creation as the surprise May payrolls number had suggested,” said James Knightley, chief international economist at ING.
Knightley added that while data on consumer spending has been encouraging, the labor market suggests the economy is a long way from “normal.”
But consumer spending has been aided by far broader programs than those targeted at businesses to retain workers. The CARES Act, which sent a $1,200 check to every American making less than $99,000 a year and has made enhanced unemployment benefits of $600/week available, has more than replaced lost income for many workers.
Recent data on consumer spending shows that this stimulus has indeed worked — give people money and they will spend it.
But with a looming July 31 expiration for these enhanced unemployment benefits and business re-hiring of furloughed workers still appearing tepid at best, the current economic rebound faces a serious risk.
“The extended unemployment benefits including the extra $600 per week payment, have clearly supported incomes and spending,” Knightley said. “However, the $600 payment is due to end in six weeks and if it isn’t extended in an environment where unemployment remains very high, there is a clear risk spending subsides again.”
As Shepherdson said Thursday — “To have 1.5M people lose their jobs just seven weeks before the enhanced unemployment benefits under the CARES Act are due to expire is very disconcerting.”
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