‘The virus remains in the driver’s seat’: New data casts shadow over fate of labor market

Lucia Mutikani
·3-min read

By Lucia Mutikani

WASHINGTON (Reuters) - The number of Americans filing new claims for jobless benefits unexpectedly increased last week, heightening fears the COVID-19 pandemic was inflicting lasting damage to the labor market.

The weekly jobless claims report from the Labor Department on Thursday, the most timely data on the economy's health, also showed at least 25 million were on unemployment benefits at the end of September, reinforcing views that the economy's recovery from the recession was slowing and in urgent need of another government rescue package for businesses and the jobless.

Labor market weakness and resulting economic hardship are major hurdles to President Donald Trump's chances of getting a second term in the White House when Americans go to the polls on Nov. 3. Former Vice President Joe Biden, the Democratic Party's candidate, has blamed the Trump administration's handling of the coronavirus crisis for the worst economy in at least 73 years.

"The economy's pace of recovery is slowing down amid the ongoing pandemic," said Andrew Chamberlain, chief economist at Glassdoor. "As the virus remains in the driver's seat, today's elevated claims cast a shadow over the fate of the U.S. labor market in the next half year."

Initial claims for state unemployment benefits increased 53,000 to a seasonally adjusted 898,000 for the week ended Oct. 10. Data for the prior week was revised to show 5,000 more applications received than previously reported.

Economists polled by Reuters had forecast 825,000 applications in the latest week.

Jobless claims skyrocketed in March are still extremely high. (Reuters)
Jobless claims skyrocketed in March are still extremely high. (Reuters)

Unadjusted claims rose 76,670 to 885,885 last week. Economists prefer the unadjusted claims number given earlier difficulties adjusting the claims data for seasonal fluctuations because of the economic shock caused by the coronavirus crisis.

Including a government-funded program for the self-employed, gig workers and others who do not qualify for the regular state unemployment programs, 1.3 million people filed claims last week.

U.S. stocks opened lower. The dollar rose against a basket of currencies. U.S. Treasury prices were higher.

Permanent unemployment rising

Seven months into the pandemic in the United States, first-time claims remain well above their 665,000 peak during the 2007-09 Great Recession, though below a record 6.867 million in March. About 3.8 million people had permanently lost their jobs in September, with another 2.4 million unemployed for more than six months.

The claims report also showed the number of people receiving benefits after an initial week of aid dropped 1.165 million to 10.018 million in the week ending Oct. 3. But economists believe the so-called continuing claims are declining in part as people exhaust their eligibility for benefits, which are limited to six months in most states.

About 2.8 million workers filed for extended unemployment benefits in the week ending Sept. 26, up 818,054 from the prior week. That was the largest weekly gain since the program's launch last spring.

With the White House and Congress struggling to agree on another rescue package for businesses and the unemployed, claims are likely to remain elevated.

Tens of thousands of airline workers have been furloughed. State and local government budgets have been crushed by the pandemic, leading to layoffs that are expected to escalate without help from the federal government.

High unemployment and a resurgence in new coronavirus cases across the United States threaten the economy's recovery from a recession, which started in February.

Though economic activity rebounded in the third quarter because of fiscal stimulus, the stubbornly high jobless claims suggest momentum ebbed heading into the fourth quarter.

Third-quarter GDP growth estimates are topping a 32% annualized rate. The economy contracted at a 31.4% pace in the second quarter, the deepest decline since the government started keeping records in 1947. Growth estimates for the fourth quarter have been cut to as low as a 2.5% rate from above a 10% pace.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci)