U.S. labor market improvement stalling; second wave of layoffs seen
By Lucia Mutikani
WASHINGTON (Reuters) - The number of Americans applying for unemployment benefits fell last week, but the pace of decline has stalled in a second wave of layoffs as companies struggle with weak demand and broken supply chains and support the view that the economy is supporting Recovery from the COVID-19 recession is long and difficult.
The Department of Labor's weekly report on unemployment claims, the latest data on health of the economy, painted a picture of a troubled job market, despite employers hitting a record 2.5 million workers in May when companies reopened after the closure in mid-March to slow unemployment spread of COVID-19. At least 29 million people collect unemployment checks.
Stubbornly high unemployment could suppress the emerging signs of an economic recovery, marked by a record surge in retail sales in May and a sharp rise in permits for future housing construction. Federal Reserve chairman Jerome Powell told legislators this week that "there is still considerable uncertainty about the timing and strength of the recovery."
The economy went into recession in February.
"Recent sightings of green shoots for economic growth will fade in a hurry if workers cannot return to the jobs they lost during the pandemic recession," said Chris Rupkey, chief economist at MUFG in New York. "Over 20 million unemployed people without a paycheck are a lot of expenses that the economy lacks."
Initial jobless claims fell 58,000 in the week ending June 13 to a seasonally adjusted 1.508 million. Data for the previous week has been revised to include 24,000 more applications than previously reported, bringing the total to 1,566 million for that period.
Economists surveyed by Reuters had forecast claims would drop to 1.3 million last week. The 11th consecutive weekly decline pushed receivables further from a record 6.867 million in late March. Nevertheless, the demands during the Great Recession 2007/09 are more than twice as high.
Claims declined primarily in Florida and California, but rose in Texas and Washington State.
"The problems in the job market have shifted from mass closings and layoffs in direct response to decommissioning orders to still catastrophic numbers of layoffs related to the long-term, reverberating effects of a recession," said Andrew Stettner, senior fellow at The Century Foundation in New York.
A separate report from the Philadelphia Fed on Thursday showed that labor market conditions in mid-Atlantic factories remained subdued in June, despite strong recovery in manufacturing in the region of eastern Pennsylvania, southern New Jersey, and Delaware.
Wall Street stocks were mostly trading lower. The dollar gained against a basket of currencies. US government bond prices were higher.
MILLIONS ON UNEMPLOYMENT ROLES
Manufacturing, retail, information technology, and oil and gas exploration companies have announced job cuts. State and local governments, whose budgets were destroyed by the COVID-19 fight, are also cutting jobs.
Economists expect layoffs to accelerate when the government's paycheck protection program, part of a historic tax package worth nearly $ 3 trillion, grants loans to companies, some of which can be granted when used for wages.
The PPP has been credited with a decrease in the number of people receiving benefits after a first week of help from a record 24.912 million in early May. But even these so-called continued claims, which are reported with a delay of one week, seem to have stalled since then. The claims report showed that continuing claims declined by 62,000 to 20,544 million in the week ending June 6, suggesting companies are gradually recalling workers.
The first claims concerned the week in which the government interviewed non-agricultural payroll companies in the June employment report. Economists, however, warned that claims are no longer a good predictor of employment growth.
Some believe that states are still processing applications submitted in the past three months after the systems were overwhelmed by the unprecedented volume.
The government has extended unemployment benefits to self-employed and independent contractors affected by the COVID 19 pandemic, including through lost time, reduced working hours and wages.
These workers are not entitled to regular state unemployment insurance. You must submit as part of the Pandemic Unemployment Assistance (PUA) program. States also process applications for workers who have exhausted their regular benefits under a government-funded program.
Applications under these two programs are not included in the number of initial applications. PUA registrations increased 66,063 to 760,526 last week. During the week ending May 30, approximately 29.2 million people received unemployment benefit under all programs, the latest data available compared to 29.5 million in the previous period.
Unemployment controls for millions will end at the end of July, a tax cliff that could undermine the recovery.
"Fiscal policy needs to be strengthened again," said Joel Naroff, chief economist at Naroff Economics in Holland, Pennsylvania. "Otherwise, household incomes will drop sharply and much of the current recovery will slow down."
(Reporting by Lucia Mutikani; editing by Andrea Ricci)
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