as Labor Market Recovers

• Initial claims for unemployment insurance fell for a third straight time in the week ending May 15 to their lowest level since the beginning of the pandemic.
• The four-week moving average of initial claims fell for the sixth straight week.
• The total number of people receiving unemployment insurance benefits fell in the week ending May 1 and has been declining since March.
• Despite the disappointing April jobs report, the labor market is improving.

Initial claims for unemployment insurance under regular state programs fell by 34,000, to 444,000, in the week ending May 15. This was the lowest number of initial claims since March 14, 2020, just as pandemic began to cause widespread layoffs. Initial claims have fallen for three straight week and five of the last six weeks. Claims for the previous week were revised higher by 5,000 to 478,000.

The four-week moving average of claims, which smooths out some of the week-to-week volatility, fell to 505,000 in the week ending May 15, down by more than 30,000 from the previous week. This was also the lowest level for the four-week moving average since March 14, 2020.

The four-week moving average of claims has fallen for six straight weeks, and in 14 of the past 15 weeks. Layoffs are definitely slowing, although they remain high. Initial claims are about double the pace of around 200,000 per week before the pandemic.

After peaking at more than 6 million in April 2020, claims fell steadily through the spring and summer of 2020, but then stabilized at between 700,000 and 900,000 between August 2020 and February 2021. But over the past few months initial claims have moved consistently lower as economic activity has picked up thanks to vaccines and federal government fiscal stimulus.

Initial claims under the Pandemic Unemployment Assistance program fell to 95,000 in the week ending May 15, from 104,000 (not seasonally adjusted). This is still the lowest number of PUA initial claims since the program started last year.

The number of unemployment beneficiaries across all programs, including pandemic-related ones, fell to 15.975 million in the week ending May 1, from 16.862 million the previous week (not seasonally adjusted). The number of total beneficiaries has been falling for the past couple of months. It peaked at more than 32 million in June 2020, fell throughout the rest of 2020, stabilized at around 18 to 20 million in early 2021, and then started to decline again in March.

The number of continuing claims under regular state unemployment insurance programs rose to 3.751 million in the week ending May 8, up 111,000 from the previous week. Despite the most recent increase, this number has steadily declined from a peak of more than 23 million in May 2020. Some of the improvement has come from people leaving unemployment after finding a job, although much of it has come from beneficiaries using up their eligibility and moving to pandemic-related programs. Before the pandemic there were about 1.7 million people receiving regular state benefits a week.

The April jobs report was disappointing, with U.S. employment rising by only 266,000 over the month. But the steady decline in initial unemployment insurance claims over the past few months, as well as other UI data, suggest that the April report understated the improvement in the labor market. Other indicators, such as hiring surveys and the ADP national employment report, also suggest the Bureau of Labor Statistics’ monthly job number for April was an anomaly. A combination of supply-chain disruptions in some industries, seasonal adjustment issues, and labor supply issues weighed on job growth in April. The number is likely to be revised higher, and May job growth will be very strong.

There is some concern that extra unemployment insurance benefits of $300 per week are leading some potential workers to turn down low-paying opportunities, weighing on job growth. With many states dropping these benefits, citing the improved job market, that theory will be put to the test over the next couple of months. The extra benefits are set to expire nationally in September. Other reasons that the unemployed might not be taking available jobs include concern over contracting COVID and the need to care for children who are schooling at home because of the pandemic.

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