Almost 1.9m Americans filed for unemployment benefits for the first time last week, highlighting the continuing damage to the US labour market even after many states began lifting restrictions on economic activity.
The figure reported by the US labour department on Thursday brought the total number of jobless claims initiated since the lockdowns began in mid-March to almost 43m, dealing a staggering blow to the livelihoods of many American families.
Since hitting a peak of 6.9m first-time applications in late March, the pace of new jobless claims has been steadily declining, but at a relatively slow tempo.
Last week’s weekly toll of nearly 1.9m claims for unemployment benefits disappointed economists who were forecasting a steeper decline and is still almost three times as large as the worst figure posted at the height of the financial crisis more than a decade ago.
It sets the stage for grim news in the separate monthly jobs report for May that the labour department is due to release on Friday, which could show the unemployment rate heading towards, or even rising above, 20 per cent.
“In the best-case scenario, the employment situation for May will be the job market trough of the Covid-19 downturn. That is, the report will show the highest unemployment rate and the largest cumulative job losses of the recession,” said Erica Groshen a former Federal Reserve and labour department official now at Cornell University.
“In June, payroll jobs could begin to rebound and the unemployment rate could begin to recede. That assumes, of course, that virus infection rates, civil unrest, or lack of fiscal policy support do not derail the nascent recovery.”
Continuing claims data, which count the number of people actually receiving benefits and are considered a gauge of continuing unemployment, edged up to 21.5m for the week ending May 23.
The slowdown in the pace of jobless claims since the peak was expected after the first wave of lay-offs in response to the pandemic. But even as some Americans are returning to work as states begin to emerge from shutdowns and reboot their operations, some companies are still proceeding to implement additional lay-offs, or are moving to transform temporary furloughs into permanent staff reductions.
California and Florida were the states with the highest initial claims last week at 230,461 and 206,494 respectively.
The federal Pandemic Unemployment Assistance programme, which has extended aid to the self-employed and others, recorded 623,073 new applications in the week ending May 30. However, the expanded jobless benefits that were part of the Cares Act are expected to expire in July.
“While the drop in new claims is welcome news and more evidence that the worst of the job losses are behind us, the recovery in the labour market is expected to be painfully slow,” said Gregory Daco, an economist at Oxford Economics. “We look for a two-phase recovery, with an initial burst in rehiring followed by a much slower retracement of job losses.”
The pandemic is expected to wipe out a cumulative $15.7tn of output from the US economy this decade, the Congressional Budget Office said this week.
Federal Reserve chair Jay Powell has said the US central bank is “strongly committed” to deploying measures to help the economy during the pandemic.
Concerns remain that the sporadic looting and vandalism of businesses that broke out of largely peaceful protests against racism and police brutality, following the killing of George Floyd last week, could delay reopenings.
Other data released on Thursday further highlighted the pain in the US economy, as the trade deficit in goods and services widened to $49.4bn in April, compared with $42.3bn the previous month, the commerce department said.
Both US and global trade have already been hamstrung in recent years by economic brinkmanship between Washington and Beijing, and political tensions have escalated in recent weeks during the pandemic and over the status of Hong Kong rule.
On a more positive note, US non-farm business sector productivity was revised higher to show a 0.9 per cent drop in the first quarter, compared with initial estimates for a steeper 2.5 per cent decline in the first three months of the year. The decline in productivity, a key driver of output and wage growth, came as hours worked fell 5.6 per cent.
US equity markets traded slightly higher by mid-morning on Thursday, continuing a strong rally that has produced the biggest ever gain over a 50-day stretch based on the historic levels of central bank and government stimulus.