The labor market remains in crisis, as the pandemic limits consumer activity across the country.
Initial claims for unemployment insurance fell modestly last week, the Department of Labor reported on Thursday, although they remain very high by historical standards.
The Christmas holiday probably affected filings due to the reduced workweek, a phenomenon that also occurred during Thanksgiving week. “They go up and down a lot during the holidays,” said Gus Faucher, chief economist at PNC Financial Services Group in Pittsburgh.
There were 841,000 new claims for state benefits, compared to 873,000 the previous week. Another 308,000 people applied for Pandemic Unemployment Assistance, a federally funded program for part-time, self-employed and others who are not normally entitled to unemployment benefits.
“It’s still a very high number,” said Diane Swonk, chief economist at Grant Thornton, an accounting firm in Chicago. “The signs are not exactly favorable.”
The weakness underscores the need for the pandemic relief bill that President Trump signed on Sunday, she added. But uncertainty over the destination of the package last week, in addition to the holiday, may have temporarily depressed the claims. It will take months for the full impact of the new legislation to be felt, and most economists expect the layoff rate to remain high.
The most recent data does not bode well for the employment situation in December. The Labor Department will release its hiring and unemployment figures for next week, and Swonk expects hires to remain unchanged or to decline from November.
“The general job market is losing momentum at a critical time, as cases increase,” she said.
On a seasonally adjusted basis, the number of new state claims was 787,000, a decrease of 806,000 the previous week.
Tighter state and local restrictions on restaurants and other businesses will weigh heavily on the job market in the coming weeks, said Scott Anderson, chief economist at Bank of the West in San Francisco.
Anderson expects the monthly employment report to show that the unemployment rate rose to 6.9% in December, from 6.7% in November. The unemployment rate has dropped dramatically since its peak of 14.7 percent in April, but hiring has slowed as the economy has faltered in recent months.
The economy may have generated just about 20,000 jobs in December, said Rubeela Farooqi, chief economist at High Frequency Economics for the United States. That would represent a “major slowdown compared to last month,” she added, when the payroll jumped to 245,000.
Furthermore, the rate of layoffs has been persistently high, as sectors such as restaurants, travel and entertainment are struggling because the pandemic is keeping many people at home, even in states and cities that do not impose too many restrictions on business. In contrast, many white-collar workers who managed to work remotely came out of the economic turmoil relatively unscathed.
The introduction of vaccines is a positive point, as well as positive economic signs, such as the rise in stock prices and an expanding housing market. But it will take months before enough Americans can be vaccinated to allow people to go to restaurants, events and cinemas without fear of being infected.
“The trend is not good with the additional closures being implemented across the country,” said Carl Tannenbaum, chief economist at the Northern Trust in Chicago.