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PNC Chief Economist Gus Faucher: Big Drop in UI Claims at End of September;

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Number of People Receiving Benefits Continues to Plunge as Programs Expire

  • Initial claims for unemployment insurance fell in the week ending October 2, the first drop in four weeks.
  • The number of people receiving any form of UI benefits continues to plummet with the end of pandemic-related programs.
  • Businesses continue to report difficulties in finding workers.
  • PNC forecasts September job growth of 400,000 in the monthly jobs report to be released tomorrow, with the unemployment rate falling slightly to 5.1%. One very important indicator will be the labor force; the end of pandemic-related UI programs may be encouraging some of the unemployed to increase their job search efforts.

Initial claims for unemployment insurance fell to 326,000 in the week ending October 2, a big drop from 364,000 in the previous week (revised higher from 362,000). Claims had risen in each of the three previous weeks, the first time that had happened since the recession began in March 2020. The four-week moving average of initial claims, which smooths out some of the volatility, rose slightly to 344,000 in the week ending October 2, up from 340,500.

Despite the most recent decline, the improvement in initial claims in the late summer has stalled. After falling to as low as 312,000 in early September, initial claims moved somewhat higher over the rest of the month. Ongoing supply-chain problems and the recent surge in coronavirus cases have likely contributed to higher claims, and Hurricane Ida pushed up claims in early September.

Initial claims jumped from 200,000 per week in early 2020 to more than 6 million in April of last year as the pandemic came to the U.S. They then fell quickly to around 900,000 per week by early August 2020, then stabilized at between 700,000 and 900,000 between August 2020 and March 2021. This spring claims fell gradually but steadily before stabilizing at around 400,000 per week and then started to decline again in August.

There were 4.172 million people receiving some sort of unemployment insurance benefit in the week ending September 18 (not seasonally adjusted). This is down from 5.028 million in the previous week, and from around 12 million per week in late August and early September. The huge drop in continued claims is because various pandemic-related unemployment insurance programs expired on September 5. Even with the recent large declines, total continued claims in the week ending September 18 were still about double their pre-pandemic level of around 2 million. Total continued claims will further decline in the near term as the pandemic-related programs wrap up. Total continued claims peaked at 33.2 million in June 2020.

There were 2.714 million continued claims under regular state programs in the week ending September 25, down 97,000 from the previous week. This was the lowest level of state continued claims since mid-March 2020, before the pandemic wreaked havoc on the labor market. The four-week moving average of state continued claims was 2.765 million in the week ending September 25, down somewhat from 2.800 million the previous week.

State continued claims peaked at more than 23 million in May 2020, but are still well above their pre-recession level of around 1.7 million, and the pace of improvement has slowed in 2021. With most people receiving benefits via pandemic-related programs until recently, continued claims under regular state programs had been less important as a labor market indicator. But now that those pandemic-related programs have expired, regular state continued claims are more relevant.

The labor market is in a state of transition in the fall, with various headwinds and tailwinds. Businesses are looking to hire amid rising demand for all sorts of goods and services but are reporting labor shortages. Multiple factors are constraining labor supply. These include the ongoing pandemic and concern about catching the coronavirus, childcare and schooling issues for working parents, and recession-induced early retirements.

Another factor constraining labor supply has been the availability of unemployment insurance benefits. During the pandemic Congress and the Trump administration made more people eligible for benefits, increased the duration of benefits, and raised the level of benefits. However, these expansions expired nationally at the beginning of September, and some states had ended these expansions earlier in the summer. One reason given for ending these programs is that they discouraged labor supply and made hiring more difficult. However, there is little evidence of stronger labor force and job growth in the states that ended their participation early.

The Bureau of Labor Statistics releases the September jobs report tomorrow, Friday, October 8. PNC expects net job growth of 400,000 for September, and that the unemployment rate fell to 5.1%, from 5.2% in August. One very closely watched number will be the labor force, to see if the expiration of pandemic-related UI programs has increased job search efforts among unemployed workers.

The PNC Financial Services Group, Inc. is one of the largest diversified financial services institutions in the United States, organized around its customers and communities for strong relationships and local delivery of retail and business banking including a full range of lending products; specialized services for corporations and government entities, including corporate banking, real estate finance and asset-based lending; wealth management and asset management. For information about PNC, visit www.pnc.com.

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