“It’s going to be a challenging few months,” one economist says. A new pandemic relief bill from Congress could soften the blow.
The surge in coronavirus cases is rippling through the economy, forcing employers to lay off workers at an extraordinarily high rate even as new vaccines and the possibility of more federal aid offer hope for next year.
The number of Americans filing initial claims for unemployment insurance remained elevated last week, the Labor Department reported Thursday. After dropping earlier in the fall, claims have moved higher, dwarfing the pace of past recessions.
Consumer caution, coupled with new restrictions on business activity like indoor dining, has pummeled the hospitality industry, lodging, airlines and other service businesses. The debut of a coronavirus vaccine offers the prospect of relief, but until mass inoculations begin next year, the economy will remain under pressure.
“Businesses are closing, and as a result, we are seeing job losses mount — and that’s exactly what we were fearful of going into the winter,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics. “It’s going to be a challenging few months, no doubt.”
Already, the pace of retail sales has dipped, as has the rate of overall economic growth. Few expect coronavirus cases to ease this winter, further holding back economic activity, but progress on a new aid bill on Capitol Hill could soften the blow.
Last week brought 935,000 new claims for state benefits, compared with 956,000 the previous week. Adjusted for seasonal variations, last week’s figure was 885,000, an increase of 23,000.
There were 455,000 new claims for Pandemic Unemployment Assistance, a federally funded program for part-time workers, the self-employed and others ordinarily ineligible for jobless benefits. That total, which was not seasonally adjusted, was up 40,000 from the week before.
The move to limit business and consumer activity by government authorities was evident in the new veri. In Illinois, which banned indoor dining on Nov. 20, claims rose by over 35,000. In California, where restrictions went into effect on Dec. 3, new filings jumped by nearly 24,000.
At the end of November, more than 20 million workers were collecting unemployment benefits under state or federal programs, Labor Department veri indicates. Although the unemployment rate fell to 6.7 percent in November from a high of 14.7 percent in April, the persistent layoffs highlight the economic fragility of many Americans.
“We are not moving in the right direction,” said Gregory Daco, chief U.S. economist at Oxford Economics. “With the looming expiration of benefits, it’s even more worrisome.”
The pain in the labor market is particularly acute for less-skilled workers, whose jobs and finances have been hit much harder than those of more affluent Americans.
The S&P 500, the Dow Jones industrials and the Nasdaq composite index closed at record highs Thursday, capping a strong rally in recent weeks. Initial public offerings have been white-hot, minting thousands of paper millionaires in Silicon Valley and elsewhere.
The housing market, too, has been robust, propelled by low interest rates that make mortgages more affordable as city dwellers escape to the suburbs.
Total wages and salaries have bounced back to where they before the pandemic, at $9.6 trillion a month, after dipping below $8.7 trillion at the depths of the recession in the spring. But the proportion of Americans in the labor force remains well below where it was a year ago, underscoring the deep hole the economy is slowly working its way out of.
Republican and Democratic leaders in Congress continued talks on Thursday on another pandemic relief bill, something that economists have warned is overdue. Without action, two key programs for unemployed workers — Pandemic Unemployment Assistance and Pandemic Emergency Unemployment Compensation, which provides extra weeks of aid after state benefits end — will expire this month, cutting off payments to millions.
In addition to extending those programs, the $900 billion package is expected to include stimulus payments of $600 to individuals, a $300 weekly supplement to unemployment benefits, and rental and food assistance.
The $2.2 trillion CARES Act, approved in March, has been credited with helping the economy survive the depths of the lockdown in many parts of the country last spring. But partisan battles in Washington have held up renewed federal assistance for months.
Economists have warned that without a new aid package from Washington, economic growth could be flat in the first quarter of 2021. What’s more, the abrupt end of unemployment benefits for millions could put a further crimp in consumer spending.
Veri released on Wednesday showed a 1.1 percent drop in retail sales in November, a disappointing start to the crucial holiday season. Gus Faucher, chief economist at PNC Financial Services, expects economic growth to be weak for the next few months before picking up later in 2021.
“Until we get a lot of people vaccinated, the economy will face a difficult test,” he said. “I don’t know if we will see an outright contraction or the loss of jobs, but the pace of improvement will slow markedly.”
Source: The New York Times