Rise in US jobless claims signals economic reversal

Economist says rush to reopen businesses counterproductive

A demonstrator calling for the extension of Covid-19-related unemployment aid earlier this week on Capitol Hill in Washington. PHOTO: REUTERS
A demonstrator calling for the extension of Covid-19-related unemployment aid earlier this week on Capitol Hill in Washington. PHOTO: REUTERS

WASHINGTON • State unemployment claims increased last week for the first time in nearly four months, disturbing evidence that the struggling US economy is backsliding at a time when coronavirus cases are on the rise.

After a flood of claims as the pandemic forced businesses to close earlier this year, weekly unemployment filings fell sharply before flattening last month. But on Thursday, the Labour Department reported more than 1.4 million new applications for state benefits last week, up from about 1.3 million in the preceding two weeks.

Another 975,000 jobless workers filed for benefits through an emergency federal programme, also an increase. Unlike the figure for state claims, that number is not seasonally adjusted.

Claims are rising just as a US$600-a-week (S$830-a-week) federal supplement to jobless benefits is set to expire and Republican infighting has kept the party from putting forward a proposal for further aid, much less negotiating with Democrats on a Bill.

The news from the Labour Department followed a Census Bureau survey showing that four million fewer people were employed last week than the week before. It was the fourth straight decline, suggesting that nearly all the job gains since mid-May have been erased.

"At this stage, you're seeing all the wrong elements for recovery," said Mr Gregory Daco, the chief US economist at Oxford Economics. "A deteriorating health situation, a weakening labour market and a softening path for demand."

He said the rush to reopen in many states had been counterproductive, contributing to the increasing virus caseloads, particularly in the south and west, that are compelling businesses to close again.

"Increasingly I fear that we're going to see net payrolls in July show an actual decline" when the next job report is released, he added.

About 30 million people - roughly one in five American workers - are drawing jobless benefits. Without congressional action to extend the weekly federal supplement, the unemployed will be left with less money to pay for daily expenses. Also nearing an end is the federal pay cheque protection programme, which provided small businesses with emergency loans that spared many workers from layoffs.

The stubbornly high rate of new jobless claims "suggests that the nature of the downturn has changed from early on", said policy economist Ernie Tedeschi at equity research firm Evercore ISI. In addition to reflecting renewed shutdowns, the setbacks may indicate something more fundamental.

"It might be that businesses are running through their first line of credit, and now they're facing the music of an economy that has recovered a little bit but not nearly enough," he said.


A version of this article appeared in the print edition of The Straits Times on July 25, 2020, with the headline 'Rise in US jobless claims signals economic reversal'. Subscribe