After stagnating from mid-June to mid-July, initial claims for unemployment insurance fell to a recovery-to-date low the week of August 1. Even so, both initial and continuing claims are at extremely high levels, and indicate that many employers continued to lay off workers in July. Further complicating the picture, the expiration of extended unemployment insurance benefits on July 31 may be clouding the signal from the claims data.
Initial claims filed for unemployment insurance fell to 1.186 million in the week ended August 1 from 1.435 million in the week of July 25 (that number upwardly revised by 1,000). Continued claims for unemployment insurance benefits fell to 16.107 million the week of July 25 from 16.951 million a week earlier (that number revised down 67,000). The insured unemployment rate, which is insured unemployment beneficiaries as a share of all eligible workers, and not the national unemployment rate to be reported tomorrow, fell to 11.0 percent the week of July 25 from 11.6 percent a week earlier.
The Department of Labor reports data for the Pandemic Unemployment Assistance (PUA) program separately from the headline initial claims number. New PUA claims fell to 655,707 the week of August 1 from 908,800 a week earlier. These data are not adjusted for seasonal variation.
Total persons claiming benefits for all unemployment insurance programs (including standard UI, PUA, and Pandemic Emergency Unemployment Compensation, the program for claimants whose benefits in other programs have been exhausted) rose 492,816 the week ended July 18 to 31.309 million from 30.816 million a week earlier. Like the PUA data, the data on beneficiaries of all programs are not seasonally adjusted, and are released at a two-week lag to today’s initial claims data.
The increased and expanded unemployment insurance benefits passed earlier this year in the CARES Act expired on July 31. The expiration of these benefits last week may have discouraged some job losers from applying, clouding the signal from the claims data. Even so, the drop in the latest week is positive, and suggests the recover that began in May and June probably continued in July.
PNC forecasts that tomorrow’s release of the Bureau of Labor Statistics’ Employment Situation Summary for July will show the unemployment rate falling to 10.6 percent from 11.1 percent in June as employers add a net 1.9 million nonfarm payroll jobs. However, risks to this outlook are to the downside: ADP’s estimate of private payroll job growth released Wednesday was just 167,000, well short of the 1,200 consensus, and the most important U.S. business sentiment surveys-the ISM manufacturing and services PMIs-both showed that a majority of employers reduced headcount in July.
More important to the near-term outlook than these jobs data is whether the increased unemployment insurance benefits are extended. If not, aggregate household income will drop by about $75 billion per month beginning in August, which would cause a large net decline in household income in the third quarter and create a very large headwind to the recovery.
Assuming unemployment benefits _are_ extended, PNC forecasts that the recovery that began in May and June will continue in the second half of this year, lowering the unemployment rate to under 10 percent by year-end 2020 and to 6 to 7 percent by year-end 2021. Risks to this outlook are skewed to the downside, both from fiscal policy as well as the risk that the pandemic worsens again and forces another wave of lockdowns and shelter-in-place orders.
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