Unemployment claims likely dipped further below 1M

A measure of weekly layoffs in the U.S. has finally dipped below 1 million, and economists expect the trend to continue as recent spikes in COVID-19 cases generally ease.

Economists surveyed by Bloomberg estimate the Labor Department will report Thursday that 920,000 Americans filed first-time applications for unemployment benefits during the week ending Aug. 15, down from 963,000 the prior week.

Some perspective, however: That would bump total initial claims over the past 22 weeks past a staggering 57 million. Also, the numbers have been volatile and initial claims are still extraordinarily elevated. Before the pandemic, the previous all-time high for weekly claims were 695,000 during a recession in 1982.

But if Thursday’s figure is at or below the official estimate, it would mark the third straight weekly decline after initial jobless claims increased for two consecutive weeks in July amid a spike in coronavirus cases, particularly in the South and West. States that allowed shuttered businesses to reopen early had to pause or reverse those plans, slowing or halting the rehiring of laid off-workers and spurring another round of job cuts at many restaurants, shops and other businesses.

Yet last week’s projected drop is modest and suggests that claims could easily rise again after declines of more than 200,000 each of the previous two weeks, with the most recent drop nudging the tally below 1 million – the lowest since mid-March.

Meanwhile, continuing claims are estimated to have fallen to 15 million from 15.5 million the previous week, according to the Bloomberg survey. Economists have been focusing more closely on continuing claims, which represent all Americans still receiving benefits with a one-week lag. It reflects all those still unemployed and accounts for people who have returned to work as businesses have reopened. Continuing claims also have trended lower, notwithstanding a rise in mid-July.

Both initial and continuing claims broadly have tracked the course of the virus. COVID-19 cases have trended lower across the U.S. recently and the share of positive tests has fallen in Arizona and Texas, two hot-spot states, Goldman Sachs wrote in a research note.

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But the recovery has been mixed. Cases remain high in Florida and Georgia, Goldman notes. And the resumption of in-person classes at some universities has sparked fresh outbreaks.

Last week’s claims totals could be key because they would represent the first since the government closed the window for applications for forgivable federal loans to small businesses that retain or rehire employees, says Nomura economist Lewis Alexander. Also, the vast majority of businesses have exhausted the money they received under that initiative, known as the Paycheck Protection Program, prompting some struggling businesses to lay off more workers.

Congress remains deadlocked over a proposal to extend a $600 federal weekly supplement to state unemployment benefits that expired July 31. Democrats want to continue the bonus into next year while Republicans prefer to trim it to $400. President Trump has signed an executive order to provide the additional $400 but asked states to cover $100 of that cost. It’s unclear if Trump has the authority to extend the benefit without legislation, and it could take months for states to implement it.

Meanwhile, the expiration of the $600 may have led many workers to forgo filing initial claims, JPMorgan Chase says, distorting the reading on U.S. layoffs provided by the weekly report.

At the same time, Barclays says recent initial claims figures may have been inflated by state backlogs and duplicate applications. Also, the totals don’t capture layoffs only. Furloughed workers and those with reduced hours also can apply for benefits during the crisis.

The latest claims totals will figure into the August employment report. Some economists say the survey could show fresh net job losses — including layoffs and new hiring — as a result of the coronavirus spikes. From May through July, the economy recovered 9.3 million of the 22 million jobs lost in the early days of the pandemic.      

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