; Unemployment Remains a Significant Problem

• Initial claims for unemployment insurance fell in the week ending January 16 and claims for the previous week were revised substantially lower. Initial claims are higher than they were in the fall, but the increase in layoffs does not appear to be as problematic as previously thought.
• There was a big decline in total unemployment insurance beneficiaries in the week ending January 2, but that was due to the temporary expiration of pandemic benefits.
• The labor market continues to slowly heal but unemployment remains extremely elevated.

Initial claims for unemployment insurance fell in the week ending January 16 to 900,000. More importantly, claims for the previous week were revised much lower, to 926,000, from 965,000. Claims are up from the 700,000 to 800,000 range they were in in October and November, but with the revision the situation does not look as dire. Claims are volatile around the holidays.

Claims were running around 200,000 per week at the beginning of 2020, then soared to almost 7 million in late March as the pandemic took held. They then steadily declined through the spring and summer, before stabilizing in the fall, albeit at well above their pre-recession levels.

Continuing claims under regular state unemployment insurance programs fell 2.5% to 5.054 million in the week ending January 9. Continuing claims have fallen steadily since peaking at almost 25 million in early May. However, much of the recent improvement has come from claimants using up their eligibility and moving to special pandemic-related programs. Before the pandemic, continuing claims were around 1.7 million per week.

There were a total of 15.995 million people receiving benefits across all programs, including special pandemic-related programs, in the week ending January 2 (not seasonally adjusted). This was down 13% from the previous week. However, the big decline came from the temporary expiration of pandemic-related benefits, not a real improvement in the labor market. Now that benefits have been restored, total claims will jump higher in the week ending January 9. At the same point in 2020 there were a total of 2.278 million beneficiaries.

The signals from unemployment insurance benefits have been distorted lately. The holidays and temporary changes to the program have led to big swings in the data that do not reflect the underlying labor market. But it is fair to say that the labor market has softened in late 2020 and early 2021 because of record-high coronavirus caseloads, although conditions are far better than they were in the late winter/early spring of 2020, when tens of millions lost their jobs.

This time around restrictions on economic activity have been more targeted and business closures far fewer. Still, the U.S. economy lost jobs in December, and could experience further job losses in January. The December job losses were almost entirely in the restaurant industry; most other industries added jobs, indicating that the underlying fundamentals of the job market remain solid. Still, historically high unemployment and underemployment remain serious challenges for the incoming Biden administration.

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