US jobless claims top 40m as economy struggles to reopen

The number of Americans seeking unemployment benefits during the pandemic has eclipsed 40m after an additional 2m people applied for the first time last week even as the pace of jobless claims continued to abate.

New jobless claims have slowed for eight consecutive weeks and the number of unemployed who were actively receiving benefits fell for the first time since the coronavirus crisis began, as states have begun to emerge from Covid-related shutdowns and restart economic activity.

A total of 40.8m Americans have filed for unemployment through state programmes over the past 10 weeks, data released by the labour department on Thursday showed.

Continuing claims, which tallies the number of Americans receiving unemployment benefits, dropped 3.9m to 21.1m for the week ending May 16, accounting for 14.5 per cent of the workforce.

The figure was far below economists’ expectations for continuing claims to rise to 25.8m, while the insured unemployment rate was down from the previous week’s 17.1 per cent. The “insured unemployed” sometimes serves as an alternative measure of unemployment.

The seasonally adjusted 2.1m initial claims last week reflected a drop from 2.4m a week earlier, which was revised slightly higher. The result matched economists’ forecast as polled by Reuters.

On an unadjusted basis, jobless claims dropped to 1.9m from 2.2m for the week that ended on May 23.

Joshua Shapiro, chief US economist at MFR, noted that while many states were still working through a backlog of unemployment requests, the decline in continuing claims also came as Americans who had sought benefits returned to work.

“The path of continuing claims will depend on the speed at which people are re-employed versus the ongoing pace of job losses,” Mr Shapiro said.

“Presumably, as the economy continues to open up, re-employment will reasonably soon begin to outpace job losses, and continuing claims will thus start to recede. It is possible that this week’s result is starting to show this.”

The federal Pandemic Unemployment Assistance programme, which has extended aid to the self-employed or other individuals who would not qualify for regular unemployment compensation, counted 1.19m new applications. The number of filers during the previous week was revised lower to 1.25m from 2.23m, reflecting incorrect data for Massachusetts that inflated the state’s figure by more than 1m.

The market reaction to the new jobless claims figured was muted. The S&P 500 US equities benchmark index opened with a slight gain of 0.2 per cent gain to trade around 3,042. The yield on the benchmark 10-year Treasury bond steadied at 0.69 per cent, while the two-year note saw its yield hover at 0.18 per cent.

Nonetheless, the data underscored the deep economic damage caused by coronavirus and the shutdown of restaurants, retail stores and other businesses since government restrictions were imposed in mid-March. The lockdowns drove US unemployment last month to its highest rate since Washington started tracking data in 1948.

“While many workers will likely be recalled once lockdowns are relaxed, depressed income and spending, lingering virus fear, and mandated capacity restrictions will likely mean half of all ‘temporary’ lay-offs could become permanent,” wrote Lydia Boussour, chief US economist at Oxford Economics, in a recent note. She expected the unemployment rate to peak at roughly 20 per cent in May and fall “only gradually thereafter”.

Other data released on Thursday offered further evidence of the pandemic’s toll on the US manufacturing sector and broader economy.

Orders for long-lasting goods such as washing machines and cars fell 17.2 per cent in April from the previous month, according to the commerce department. That followed a 14.7 per cent drop in March and marked the second-worst reading on record. Economists had been looking for a 19 per cent drop last month.

The US economy contracted at an annualised rate of 5 per cent in the first quarter, the department said in its second estimate for GDP. The so-called advance reading had the economy down 4.8 per cent for the quarter, compared with 2.1 per cent growth in the fourth quarter of 2019. 

Economists anticipate that GDP will shrink 30.3 per cent on an annualised basis in the second quarter, followed by 15.2 per cent growth in the third quarter as the economy starts to recover, according to estimates compiled by FactSet.

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