Almost 3m Americans sought jobless benefits for the first time last week, bringing the total number of unemployment benefit applications to 36.6m since the coronavirus pandemic hit the world’s largest economy.
The data offered evidence of continuing deterioration in the US labour market in the face of the cascading shutdowns that have hit many businesses across the country — and dashed hopes that the pace of lay-offs would rapidly subside after the initial shock.
Although it was the slowest increase since mid-March, the number of initial jobless claims of 2.98m in the week ended May 9, was higher than expectations of 2.5m applications, according to a survey of economists by Refinitiv.
The slow decline in the pace of unemployment benefit applications will validate the grim prognosis offered by Jay Powell, the Federal Reserve chairman, about the US economic outlook this week. Mr Powell on Wednesday said “significant downside risks” would still weigh on the US economy, and “additional policy measures” might be needed from both the US central bank and the government on top of the string of measures already taken so far, including slashing interest rates close to zero and enacting $3tn in fiscal stimulus.
While jobless claims have retreated for six consecutive weeks from a record 6.69m in late March, the sluggish rate of the decline will raise concerns that businesses are moving to deeper and more permanent reductions in their workforces.
The fate of the US labour market — which recorded an unemployment rate of 14.7 per cent in April — will also depend heavily on how successfully states can reopen their economies, a nascent process that is far from uniform across the country.
“Economic growth might get a boost from pent-up demand, but the labour markets have dug themselves a deeper hole that will be harder to climb back out of,” said Chris Rupkey, chief financial economist at MUFG.
At their current rates, jobless claims remain at levels in excess of those seen during the financial crisis and reflective of the fallout that has curtailed the US’s longest economic expansion on record.
There were some faint glimmers of hope in the data, with economists pointing to milder increases in the number of unemployed who had filed for jobless benefits for some time, as well as the number receiving unemployment insurance. The “insured unemployed” sometimes serves as an alternative measure of unemployment.
“What the continuing claims figures and the insured unemployment rate are more reliably telling us is that the unemployment rate was close to peaking at the start of May, as the number of people returning to their jobs almost offset new job losers,” said Paul Ashworth, chief US economist at Capital Economics.
“With most states only beginning to ease their lockdowns within the last 10 days, we expect a much bigger swing in hiring versus firing over the next couple of weeks, which suggests the unemployment rate will begin to drop back.”
Connecticut processed the highest number of claims in the most recent week, at 298,680, according to preliminary state-level estimates that have not been seasonally adjusted. Georgia, Florida, California and Texas followed with the next highest, each with more than 200,000 applications filed. Among them, Georgia, Florida and Texas have been some of the first states to lift restrictions on business activity.
On the stock market, the S&P 500 benchmark index opened down about 1 per cent on Thursday, putting it on track for its first three-day losing streak since early March. Government bonds remained firm, with the yield on the benchmark 10-year Treasury down 0.04 percentage points at 0.615 per cent, about the same level as before the release of the jobless figures.
Kevin Hassett, a White House economic adviser, put a brave face on the data, suggesting that the downward trend was encouraging. “ I think the fact that we came in under 3 million suggests that the turning on the economy is beginning and it’s beginning to show up with the data so what we expect now is the claims will continue to decline as the economy turns back,” he told reporters.
Easing lockdowns remains a key step to getting Americans back to work, but the question of where and when jobs can be regained is complicated by the distribution and speed at which states and regions lift their stay-at-home orders.
“The pace of that improvement will be the best barometer of how fast and how completely the economy is recovering,” said Joshua Shapiro, chief US economist at MFR. “We expect that an initial burst of growth as major population areas reopen will then be followed by a longer period where improvement is much slower and more uneven, with it taking many quarters for the economy to claw its way back to pre-pandemic levels of activity.”
That process also comes with significant risks. Anthony Fauci, one of the most senior members of US president Donald Trump’s coronavirus task force, warned on Tuesday that ending lockdowns too soon could lead to “suffering and death”.
His remarks, to a Senate committee hearing, about the risk of uncontrolled outbreaks in the US prompted a sell-off on Wall Street and followed weekend reports of new coronavirus flare-ups in China, South Korea and Germany after they had eased lockdowns.
Democrats in Congress this week proposed a further $3tn in fiscal stimulus measures to fund working families and cash-strapped states, on top of the $3tn of spending that has already been passed by the White House and Congress.