The surge in coronavirus cases is rippling through the economy, forcing employers to lay off workers with an extraordinarily high layoff rate, even as new vaccines and the possibility of further government aid offer hope for the next year.
The number of Americans filing initial unemployment insurance claims remained high last week, the Department of Labor reported Thursday. After falling earlier in the fall, claims have risen, dwarfing the pace of past recessions.
Consumer caution, coupled with new restrictions on business activities such as indoor restaurants, has hit the hotel, lodging, airline and other service industries. The debut of a coronavirus vaccine offers some prospect of relief, but until mass vaccination begins next year the economy will remain under pressure.
“Companies are closing, and as a result, job losses are increasing – and that is exactly what we feared we were going into the winter,” said Rubeela Farooqi, US chief economist at High Frequency Economics. “It will definitely be a challenging couple of months.”
The pace of retail sales has already slowed, as has overall economic growth. Few expect coronavirus cases to subside this winter and further drag on economic activity, but advances on a new relief law on Capitol Hill could ease the blow.
935,000 new state benefit claims were made last week, compared to 956,000 the previous week. Adjusted for seasonal fluctuations, last week’s value was 885,000, an increase of 23,000.
There have been 455,000 new applications for assistance from Pandemic Unemployment, a government-funded program for part-time workers, the self-employed, and other people who are normally not eligible for unemployment benefits. This sum, which was not seasonally adjusted, increased by 40,000 compared to the previous week.
The move to limit business and consumer activities by government agencies was evident in the new data. In Illinois, where indoor eating was banned on November 20, claims rose by over 35,000. In California, where restrictions went into effect December 3, new registrations rose by nearly 24,000.
As of late November, more than 20 million workers were receiving unemployment benefits under state or federal programs, according to data from the Department of Labor. Although the unemployment rate fell from 14.7 percent in April to 6.7 percent in November, the ongoing layoffs underscore the economic fragility of many Americans.
Economy & Economy
Updated
Apr. 17, 2020, 4:35 pm ET
“We’re not going in the right direction,” said Gregory Daco, chief US economist at Oxford Economics. “With the services expiring, it’s even more worrying.”
The pain in the labor market is particularly acute for the less skilled, whose jobs and finances are far more affected than those of wealthier Americans.
The S&P 500, the Dow Jones Industrials and the Nasdaq Composite Index closed at record highs on Thursday and have completed a strong rally in recent weeks. The IPO was hot news and shaped thousands of paper millionaires in Silicon Valley and elsewhere.
The housing market has also been resilient, fueled by low interest rates that make mortgages more affordable as city dwellers flee to the suburbs.
Total wages and salaries have returned to pre-pandemic levels at $ 9.6 trillion a month after falling below $ 8.7 trillion in the depths of the spring recession. But the American share of the labor force remains well below a year ago, underscoring the deep hole the economy is slowly working its way out of.
Republican and Democratic leaders in Congress resumed talks Thursday on another pandemic relief bill that economists have warned is overdue. With no action taken, two key unemployed programs will expire this month – Pandemic Unemployment Assistance and Pandemic Emergency Unemployment Compensation, which provide extra weeks of assistance after government benefits expire and cut payments to millions.
In addition to extending these programs, the $ 900 billion package is expected to include $ 600 stimulus payments to individuals, a $ 300 weekly unemployment benefit allowance, and rent and food aid.
The $ 2.2 trillion CARES bill, passed in March, has been credited with helping the economy weather the depths of lockdowns in many parts of the country last spring. But partisan battles in Washington have held up renewed federal support for months.
Economists have warned that without a new aid package from Washington, economic growth could stay flat in the first quarter of 2021. In addition, the abrupt end of unemployment benefits for millions could further weigh on consumer spending.
Data released on Wednesday showed retail sales declined 1.1 percent in November, a disappointing start to the crucial Christmas season. Gus Faucher, chief economist at PNC Financial Services, expects economic growth to be weak for the next several months before accelerating later in 2021.
“Until we vaccinate many people, the economy will face a difficult test,” he said. “I don’t know if there will be a total decline or loss of jobs, but the pace of improvement will slow significantly.”
