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PNC Chief Economist Gus Faucher: Fourth Straight Decline in Initial UI Claims

pncfsg Croppedas Labor Market Recovery Continues

  • Initial claims for unemployment insurance fell for a fourth straight week in the week ending August 14, to their lowest level since the start of the pandemic.
  • The number of people receiving some form of unemployment insurance benefit fell by more than 300,000 in the week ending July 31.
  • The labor market continues to recover, but unemployment remains high.
  • Pandemic-related UI benefits will expire in early September.

Initial claims for unemployment insurance fell by 29,000, to 348,000, in the week ending August 14. This was the fourth straight week of decline in initial claims. It was also the lowest level of initial claims since March 2020, when the pandemic was just starting to hit the U.S. economy. Claims for the previous week were revised slightly higher, to 377,000 from 375,000. The four-week moving average of claims, which smooths out some of the week-to-week volatility, fell to 377,750  in the week ending August 14. This was also the lowest level for the four-week moving average since the beginning of the pandemic.

Initial claims appear to be moving lower after running at around 400,000 per week since June. This is lower than they’ve been since the pandemic came to the U.S., but is still about double their pre-pandemic level. 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, then stabilized at between 700,000 and 900,000 between August and March. In the spring claims fell gradually but steadily to around 400,000 per week.

Initial claims under the Pandemic Unemployment Assistance program were 109,000 in the week ending August 14, up from 104,000 the previous week (not seasonally adjusted). PUA initial claims have moved somewhat higher in recent weeks.

There were a total of 11.744 million people receiving some form of unemployment insurance benefit, including pandemic-related benefits, in the week ending July 31 (not seasonally adjusted). This was down by 312,000, from 12.055 million, the previous week. The total number of beneficiaries fell to its lowest level since April 2020, as the pandemic was starting to wreak havoc on the U.S. economy. But it is still many times the approximately 2 million weekly continued claims in early 2020, before the pandemic. Total continued claims peaked at 33.2 million in June 2020.

Continued claims under regular state UI programs fell to 2.820 million in the week ending August 7, down 79,000 from the previous week. This is the lowest level for continued claims since before the pandemic, and down from a peak of more than 23 million in May 2020. But continued claims are 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, regular state continued claims have become less important as a labor market indicator.

Initial unemployment insurance claims under regular state programs fell for a fourth straight week in mid-August, suggesting that the labor market recovery remains strong even as the delta variant has led to rising coronavirus caseloads in the U.S. The economy added 943,000 jobs in July, the best month for job growth since October 2020, and falling initial claims suggest that August could be another very good month for the labor market. Continued claims continue to fall as well, in part because the unemployed are finding jobs. Some states have been ending pandemic-related UI programs, and they will expire nationally at the beginning of September. This will lead to a big drop in continued claims, and is likely to spur more job hunting by the unemployed.

The U.S. labor market still has a long way to go before it is back to normal. Layoffs remain well above their pre-pandemic level, and many millions of people who lost their jobs during the pandemic remain unemployed. The economy will add around 650,000 jobs per month through the rest of this year, with employment surpassing its pre-recession peak in the spring of 2022. The unemployment rate, which fell from 5.9% in June to 5.4% in July, will end this year below 5%, and next year at around 4%.

Demand for workers from expanding businesses is very strong; the biggest labor market question is whether there are enough people to fill those jobs. There are about 3 million fewer people in the U.S. either working or looking for work now, as compared to before the pandemic. If employment is return to its pre-pandemic level labor force growth must pick back up. Some of the contraction in the labor force is due to concern about the coronavirus, some is due to childcare responsibilities, some is due to an increase in legislated unemployment insurance benefits and some is due to recession-induced early retirement among older workers. The first three factors should gradually fade over the next year, allowing for continued strong job growth through the rest of 2021 and into 2022.

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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