Sticky weekly jobless claims underscore U.S. labor market distress
WASHINGTON (Reuters) – The number of Americans filing claims for unemployment benefits fell less than expected last week likely as hiring by reopening businesses is being partially offset by a second wave of layoffs, supporting the view that the labor market could take years to recover from the COVID-19 pandemic.
Other data on Thursday reinforced expectations that the economy would contract in the second quarter at its deepest pace since the Great Depression. Though orders for key capital goods rebounded in May, the increase recouped only a fraction of the steep decline in April. The goods trade deficit widened sharply last month as the pandemic continued to disrupt trade.
“All is not well in this economy,” said Chris Rupkey, chief economist at MUFG in New York. “While it counts as good news that businesses are ordering more equipment in May as the states reopened, the second wave of the pandemic may keep companies cautious in the months ahead when it comes to making new investments in the country’s future.”
Initial claims for state unemployment benefits fell 60,000 to a seasonally adjusted 1.480 million for the week ended June 20, the Labor Department said. Economists polled by Reuters had forecast 1.3 million claims in the latest week.
Claims have dropped from a record 6.867 million in late March, but progress has slowed and they are more than double their peak during the 2007-2009 Great Recession.
The weekly jobless claims report, the most timely data on the economy’s health, also showed millions continue to collect unemployment checks more than a month after many businesses resumed operating following closures in mid-March in an effort to slow the spread of COVID-19, the respiratory illness caused by the novel coronavirus.
Companies are hiring, but others are cutting jobs at nearly the same pace. The economy slipped into recession in February.
From manufacturing to the transportation, retail and leisure and hospitality industries, companies are restructuring to adapt to a vastly changed landscape, leading to layoffs and bankruptcies. State and local governments, whose budgets have been squeezed by the COVID-19 fight, are also cutting jobs.
Rising coronavirus infections in many parts of the country, including California, Texas and Florida, are likely to hurt the economy as some people stay away from consumer-facing establishments, even if businesses are not shut down again.
In a separate report on Thursday, the Commerce Department said orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, increased 2.3% in May as demand rose across the board. These so-called core capital goods orders dropped 6.5% in April.
Shipments of core capital goods rose 1.8% last month. Core capital goods shipments are used to calculate equipment spending in the government’s gross domestic product measurement. Core capital goods shipments declined 6.2% in April.
In another report, the Commerce Department said the goods trade deficit jumped 5.1% to $74.3 billion in May. Exports tumbled 5.8% while imports decreased 1.2%. With imports declining further, retailers and wholesalers continued to draw down their inventories.
The data support economists’ expectations that GDP could shrink at as much as a 40% annualized rate in the second quarter. The Commerce Department confirmed on Thursday that the economy contracted at a 5% pace in the January-March quarter, the deepest downturn since the Great Recession.
Stocks on Wall Street were trading lower on the data and the rising coronavirus cases. The dollar .DXY rose against a basket of currencies. U.S. Treasury prices rose.
The claims report showed the number of people receiving benefits after an initial week of aid fell 767,000 to 19.522 million in the week ending June 13. These so-called continued claims are reported with a one-week lag.
Continuing claims have dropped from a record 24.912 million in early May, with economists crediting the government’s Paycheck Protection Program, part of a historic fiscal package worth nearly $3 trillion. The program gives businesses loans that can be partially forgiven if used for wages.
The continuing claims data covered the week that the government surveyed households for June’s unemployment rate.
The measurement of the jobless rate has been biased down since March by people incorrectly misclassifying themselves as being “employed but absent from work.”
The Labor Department’s Bureau of Labor Statistics (BLS), which compiles the employment report, is working with the Census Bureau to correct this problem in upcoming reports.
Without the misclassification problem, the unemployment rate would have been 16.3% in May instead of 13.3% and would have peaked at about 19.7% in April.
“We may not see a major decline in the June unemployment rate,” said Joel Naroff, chief economist at Naroff Economics in Holland, Pennsylvania. “Indeed, if BLS finally corrects its misclassification problem, we could actually see the rate rise from the May published rate.”
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