WASHINGTON • Fewer Americans sought unemployment benefits last week, but the modest drop did little to dispel concerns that the US job market and wider economy face an arduous recovery from the devastation inflicted by the coronavirus pandemic last year.

The final major economic data point for last year, which saw a recession of historic magnitude erupt out of nowhere, stood as a fitting reminder for both how far the recovery has progressed and how much more it has to go.

While new claims for benefits reported by the US Labour Department on Thursday dropped for the second week in a row to a seasonally adjusted 787,000 in the week ended Dec 26, from 806,000 a week before, it left them at roughly the level they were three months ago and with little indication they would show material improvement any time soon.

The arrival of effective Covid-19 vaccines and additional federal pandemic aid have set the stage for a brighter 2021.

But economists agree that the still-raging epidemic and the fractured government response to it mean more hard months ahead before improvement takes hold.

"While prospects for the economy later in 2021 are upbeat, the economy and labour market will have to navigate some difficult terrain between now and then and we expect claims to remain elevated," said Oxford Economics lead economist Nancy Vanden Houten.

Covid-19's unexpected appearance in late 2019 and rapid spread early last year brought an abrupt end to a record-long economic expansion in the United States that had fostered the strongest job market in generations. It also brought down the global economy, dashing hopes for a second straight decade of uninterrupted growth and widening prosperity.

HIGH LEVEL OF CLAIMS

The report also showed that as of the middle of last month, more than 19.5 million people were getting some form of jobless aid, including from emergency measures extended by the latest coronavirus aid Bill passed by Congress and signed by President Donald Trump. Those emergency programmes now account for roughly two-thirds of all ongoing jobless assistance.

As of Dec 19, the number of people continuing to draw benefits under regular state unemployment insurance programmes had fallen to 5.219 million, the lowest since March, from 5.322 million the week before.

Economists took little solace from that decline, however, seeing it more as the result of people exhausting benefits rather than finding new work.

The elevated level of claims aligns with other recent weak economic reports, including a decline in consumer confidence to a four-month low last month as well as drops in both consumer spending and income that same month.

With persistently high Covid-19 infection levels forcing renewed restrictions on businesses and consumer activity around the country, some economists now see a chance that overall US employment had fallen last month for the first time since April, when 20.8 million people lost jobs in a single month.

While payrolls have risen each month since then, the total level of employment remains roughly 10 million jobs below its pre-pandemic level.

Chief financial economist Aneta Markowska at Jefferies this week said the company's in-house economic activity index, which tracks the recovery through high-frequency measures, has fallen to a three-week low, led by weakness in measures of consumer spending and employment.

"Taken at face value, our data suggests further downside for retail sales, raising the prospect of an outright contraction in December employment," she wrote in a note.

"However, with more fiscal stimulus on the way, we expect the negative momentum to reverse in January."

The Labour Department will issue last month's employment data on Jan 8.

PANDEMIC RELIEF TUSSLE

The latest labour report's end date - Dec 26 - was when as many as 14 million people were set to lose jobless benefits provided by a US$3 trillion (S$4 trillion) pandemic relief Bill enacted in the spring. That was a cliff that lawmakers had raced to avoid by passing a nearly US$900 billion supplemental package in the days before Christmas, including US$600 payments to most individuals and extensions of unemployment benefits and eviction moratoriums.

However, President Trump railed against the deal negotiated by his own Treasury Secretary, demanding higher payments to individuals, and did not sign it into law until Sunday, after extensive badgering by senior lawmakers in his Republican Party.

It was unclear whether that lapse had a material effect on last week's data or what impact it might have on the level of claims in the current week and into this year.

"The new stimulus package is a life preserver, but containing the virus is the only way to completely end the economic chaos," said economist AnnElizabeth Konkel at Indeed Hiring Lab. "Even then, a full recovery will have to clear the hurdle of mounting long-term joblessness," she added.

REUTERS