Jobless Claims Unexpectedly Rise to 412,000

US President Joe Biden holds a press conference after the US-Russia summit in Geneva on June 16, 2021. (Photo by PETER KLAUNZER / POOL / AFP) (Photo by PETER KLAUNZER/POOL/AFP via Getty Images)
PETER KLAUNZER/POOL/AFP via Getty Images

New claims for unemployment benefits unexpectedly rose last week, the first such setback for the labor market since April.

The Labor Department said Thursday that jobless claims rose 37,000 from the week before to a seasonally adjusted 412,000. The number of jobless claims generally reflects the pace of layoffs.

The unadjusted number of initial claims under state programs totaled 402,352 in the week ending June 12, an increase of 37,174 or 10.2 percent from the previous week. The seasonal factors had expected a fractional decline from the previous week. In addition, for the week ending June 12, 52 states reported 118,025 initial claims for Pandemic Unemployment Assistance. So total new claims, unadjusted, rose 19 percent to just over 520,000.

Economists had expected a decline to 360,000 after the 376,000 initially reported a week earlier. The prior report was revised down by 1,000.

Many Americans are hanging back from working because, for a very large share of those unemployed, supplemental federal jobless benefits, on top of regular state unemployment aid, pay them more than their old jobs did. Others are contending with health and child care issues related to COVID-19 and, in some cases, with career uncertainty after the recession wiped out many jobs for good. Some who have lost work during the pandemic have decided to retire while others have rethought their career choices after working from home or being out of work during the pandemic.

Many states, though, are set to begin dropping the supplemental federal jobless aid this month. That will likely prompt many Americans to return to work over the coming weeks and months. The enhanced benefits, which pay $300 a week on top of an average $320 in state benefits, are set to expire nationwide in September.

With mask orders and capacity limits being lifted, vaccinations up, and more consumers venturing out to spend — on restaurant meals, airline fares, movie tickets, and store purchases — the economy is rapidly recovering from the recession. All that renewed spending—helped along by stimulus payments that went out in March and April—has fueled customer demand and led many companies to seek new workers, often at higher wages, and avoid layoffs. Consumers are shifting some of their spending from household goods to long-neglected services and vacations.

The speed of the rebound from the recession has caught many businesses off guard and touched off a scramble to hire. In May, employers added a less-than-expected 559,000 jobs, evidence that many companies are struggling to find enough workers as the economy recovers faster than expected. In April, companies posted over 9 million job openings, a record high and a jump of 12 percent from March.

Fiscal stimulus and loose monetary policy, however, are fueling inflation. As well, the sudden lurches in the economy have caused bottlenecks in the supply chain, triggering shortages and skyrocketing prices for things like used cars, lumber, and grains. Those rising prices are taking their toll and squeezing households. Retail spending actually fell in May, homebuilding is stalling, gasoline is at multi-year highs, and inflation-adjusted incomes have been declining as wage gains get swamped by larger rises in the cost of living.

“It turns out it’s a heck of a lot easier to create demand than it is to, you know, to bring supply back up to snuff,” Fed chair Jerome Powell said in a press conference at the conclusion of the Federal Open Market Committee’s two-day meeting Wednesday.

Despite the higher than expected inflation, Powell said the Fed intends to keep rates low for as far as the eye can see. The Biden administration continues to push for billions of dollars of more spending, which many economists think will add to the inflationary pressures without substantially improving the performance of the economy. On Wednesday, the economic projections of Fed officials showed that they expect inflation for the full year to run a full percentage point higher than they did in March while expectations for economic growth improved by just half a point and unemployment expectations did not improve at all.

But many economists expect hiring to catch up with demand in the coming months, especially as federal unemployment aid programs end and more people pursue jobs. They note that the economy still has 7.6 million fewer jobs than it did before the pandemic struck.

The rapid rollout of vaccines has brought the number of new confirmed COVID-19 cases down to an average of just over 12,000, from around 250,000 a day in early January.

Though jobless claims have tumbled since the start of 2021, when they exceeded 900,000, they remain high by historical standards. Before the pandemic paralyzed the economy in March 2020, unemployment applications were running at about 220,000 a week.

In Thursday’s report, the government said a total of 3.5 million Americans were continuing to collect traditional state unemployment benefits after their initial claims in the week ending June 5, up by just 1,000 from the week before. The total number of continued weeks claimed for benefits in all programs for the week ending May 29—the total gets reported with a delay of three weeks—was 14,828,950, a decrease of 559,873 from the previous week.

Claims are volatile so economists like to look to the four-week average to get a more accurate view of the labor market. The four-week average of initial claims fell 8,000 to 395,000. The average of continuing claims, reported with a one-week delay, fell to 3,603,750, a decrease of 55,000 from the previous week’s revised average. This is the lowest level for this average since March 21, 2020 when it was 2,071,750.

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