First-time unemployment claims continue to trend lower from record levels but remain exceptionally high. Although the number of ongoing claims continues to decline, there are signs that the pace of improvement is slowing.
Initial claims for Americans applying for first-time unemployment insurance was again a seven-digit figure, coming in at 1.314 million, moderately better than expectations for 1.38 million. Prior-week first initial claims were revised down by 14,000 to 1.413 million.
Although first-time claims remain elevated and are declining at a measured pace, continuing claims are falling more rapidly. For the week ended June 27, continuing claims declined by nearly 700,000 to 18.06 million — still an exceptionally large number. Even so, that reduction reflects employers adding workers back to payrolls at a solid pace and provides further evidence that net job creation remains solidly positive.
Not surprisingly, the sharp decline in claims over the past two months has been apparent in the improving jobless rate, which fell again last month to 11.1%, down from 13.3% in May. The number of unemployed Americans has improved substantially since April as restrictions were lifted across much of the country and employers began to rehire workers.
However, optimism about the near-term outlook has dimmed somewhat in recent weeks. Certainly, all indications are that the economy has bounced back more rapidly than expected, but that pace of recovery is unlikely to be sustained.
The greatest risk to the improving labor market conditions is the resurgence of COVID-19, as outbreaks rise nationwide. Growing pressure on policymakers to take aggressive steps to restrict travel and activity in an effort to curtail the spread of the virus will have a predictably negative economic impact, which would almost certainly push jobless claims higher once again.
As such, it’s quite possible that claims take a step back before continuing to trend lower. The speed at which restrictions, cancellations, and lockdowns impacted the economy broadly and labor market conditions in March illustrated how quickly conditions can change. Although parts of the economy have since adapted and a second wave of closures may not be as impactful, it would be a setback for an economy still gathering its strength after being knocked to the mat.
The bottom line is that recent jobs data still points to a mending economy, but one that’s still very vulnerable to the risk presented by the surge in COVID-19 cases and, more notably, the policies employed to reduce the inherent health risk.
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