Jobless claims dip to 787,000 in first week of new year, but layoffs still running high

What could rattle markets in 2021, even as vaccines are rolling out

The numbers: The number of Americans who applied for jobless benefits fell slightly in the first week of the new year, but unemployment is still extremely high and unlikely to fall much until the record coronavirus pandemic recedes.

Initial jobless claims filed traditionally through the states fell by 3,000 to a seasonally adjusted 787,000 in the seven days ended Jan. 2, the government said Thursday. The prior week’s number was revised up by 3,000 to 790,000.

Economists surveyed by Dow Jones and the Wall Street Journal had forecast initial jobless claims to total 815,000.

Another 161,460 applications were filed through a temporary federal-relief program, but that was barely half as many as in the prior week.

The decline likely stemmed from a brief expiration of the federal program. President Trump signed a law reauthorizing extended benefits in late December one day after the program expired. The new law also provides up to $300 a week in additional federal cash benefits.

Read: When will jobless Americans get their extra $300 in benefits

Adding up new state and federal claims, the government received 1.08 million applications last week, based on actual or unadjusted figures. Combined claims have yet to drop below 1 million a week since last spring.

While jobless claims have correctly reflected the rise and decline in unemployment during the pandemic, a government watchdog agency also found the number of distinct individuals applying for or collecting benefits has been inflated by fraud, double counting and other problems.

Read: Jobless claims inflated, GAO finds

The Bureau of Labor Statistics is taking steps to improve the data, but for now the claims report is not considered entirely accurate. Economists say to pay attention to the direction of claims instead of the totals.

Read: Why the inaccurate jobless claims report is still useful to investors

What happened: After falling to a pandemic low of 711,000 in early November, new jobless claims moved higher again after a record surge in coronavirus cases in December.

Restaurants and other businesses facing renewed government restrictions were forced to lay off more workers while other companies put off hiring plans. It’s even possible the U.S. lost jobs in December for the first time since the economy reopened last May.

Last week new claims rose the most in the states of Colorado, Kansas, Virginia and Louisiana. They fell the most in Illinois and California.

The number of people already collecting state jobless benefits, meanwhile, declined by 126,000 to a seasonally adjusted 5.07 million. That’s a new pandemic low for continuing claims.

Yet millions of people who have run out of state benefits have simply shifted to the temporary federal program because they still can’t find work. Continuing claims funded by the federal government totaled 4.52 million in the week ended Dec. 19, the latest data available.

Applications for federal unemployment benefits have more than tripled since August.

Altogether, the number of people receiving benefits from eight separate state and federal programs was reported at an unadjusted 19.2 million as of Dec. 19. That was down 419,228 from the prior week.

Those numbers are also under dispute, though. The government’s more comprehensive monthly jobs report indicated a far smaller 10.7 million people were unemployed at the end of November. Economists say the true number of unemployed is probably in the middle.

Big picture: The biggest wave of coronavirus cases since the spring has sapped the labor market again and is likely to depress hiring for the next few months until vaccines become more widespread and the pandemic fades.

How much damage the virus has caused will be revealed by Friday’s government employment report for December. Wall Street economists forecast an increase of 50,000 new jobs, but they don’t rule out the first decline in seven months.

Read: ADP says private sector sheds jobs for first time since April

What will help the economy in the meantime is a fresh round of federal aid for the unemployed and the prospect of more help from the incoming Biden administration. President-elect Biden has vowed to provide extra cash payments to families and aid for stressed state and local governments.

See: MarketWatch Coronavirus Recovery Tracker

What they are saying? “While prospects for the economy later in 2021 are upbeat, the economy and labor market will have to navigate some difficult terrain between now and then, and we expect claims to remain elevated,” wrote lead U.S. economist Nancy Vanden Houten of Oxford Economics in a note to clients.

Market reaction: The Dow Jones Industrial Average

and S&P 500

were set to open higher in Thursday trades.

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