Business

1.4 million Americans sought jobless benefits last week, up for 1st time since March

The number of laid-off Americans seeking unemployment benefits is up for the first time since the coronavirus pandemic struck in March.

A $600 weekly federal aid payment for people without jobs is also set to expire at the end of this week

Special events workers who were forced out of work because of the COVID-19 pandemic marched in Salt Lake City, Utah on Tuesday. (Rick Bowmer/The Associated Press)

The coronavirus pandemic's resurgence in the United States caused the number of Americans seeking unemployment benefits to rise last week for the first time in nearly four months, evidence of the deepening economic pain the outbreak is causing.

Weekly jobless claims rose to 1.4 million, underscoring the outsized role the unemployment insurance system is playing among U.S. safety net programs — just when a $600 weekly federal aid payment for people without jobs is set to expire at the end of this week.

Last week's pace of unemployment applications — the 18th straight time it's topped one million —  was up from 1.3 million the previous week. Before the pandemic, the number of weekly applications had never exceeded 700,000. 

An additional 975,000 applied last week for jobless aid under a separate program that has made self-employed and gig workers eligible for the first time.

The weakening of the labour market has raised fears that the U.S. economy will shed jobs again in July, after two sharp hiring gains in May and June, and derail prospects for a recovery from the recession. 

"The labour market remains in a precarious place as COVID-19 cases surge in some parts of the country and fresh lockdown measures are adopted in response," said Nancy Vanden Houten, lead economist at Oxford Economics, a consulting firm.

How other countries are faring

In contrast to the U.S., the outlook has brightened for some other major economies. Europe is forecast to rebound next year after having managed to shrink its coronavirus caseload. Unemployment in the 19 countries that use the euro has remained contained, reflecting aggressive government efforts to keep workers on payrolls.

And China has become the first major economy to grow since the start of the pandemic. Economists say China will likely recover relatively fast because of the Communist Party's move to impose early and intensive anti-disease measures.

Painfully high number of layoffs

The painfully high number of layoffs reflects a pandemic that's causing both confirmed infections and deaths to rise nationally. 

The U.S. government said Thursday that the total number of people receiving jobless benefits fell 1.1 million to 16.2 million. That was a hopeful sign that even as layoffs remain persistently high, some companies are recalling workers. Yet that figure is still roughly 10 times what it was before the pandemic.

Last week, applications for unemployment benefits declined in many states that have been hard hit by the virus, including Texas, Florida, Georgia and Arizona. Jobless claims rose in other states that are also seeing increases, however, including Louisiana, California and Tennessee.

The resurgence of confirmed virus cases has forced some businesses to close a second time or to impose tighter restrictions on customers in response to state mandates. The resulting pullback in business activity has hindered job growth and likely forced additional layoffs.

People line up outside the Utah Department of Workforce Services, in Salt Lake City, Utah on April 13. (Rick Bowmer/The Associated Press)

Combining aid packages

The federal government's $600 weekly benefit for laid-off workers, which is in addition to whatever jobless aid a state provides, is the last major source of economic help from the $2 trillion relief package that Congress approved in March. A small business lending program and a one-time $1,200 payment have largely run their course. 

Members of Congress are negotiating another aid package that might extend the $600 benefit, though likely at a lower level. With state aid packages combined with the $600 weekly federal benefit, research shows roughly two-thirds of unemployed people are receiving more in aid than they earned at their former jobs — a finding that's led Republicans to argue that it is discouraging people from returning to work. 

Yet the additional money has also been a key source of support for people who lost jobs that no longer exist or who fear being infected by the virus if they return to work.

The federal jobless aid has also helped protect the U.S. economy. Unemployment aid accounted for six per cent of all U.S. income in May, a greater share than even Social Security. Economists say it's one reason why retail spending rebounded as quickly as it did in May and June, helping fuel a modest economic rebound.

The economic impact of rising cases

Laboratories are buckling under a surge of coronavirus tests, creating processing delays that are undercutting the pandemic response. 

The U.S. tally of confirmed infections is nearing four million, with deaths above 143,000, and some workers are being kept off the job while awaiting test results. Analysts say the economy can't improve until authorities can control the spread of the virus, a need that is complicating the reopening of businesses and schools.

With confirmed cases of the coronavirus having risen in 46 states compared with two weeks ago, economists say they're increasingly worried that any recovery is now in jeopardy. Twenty-two states have paused or reversed the reopening of businesses, according to economists at Bank of America. 

Real-time measures of the economy suggest that companies are pulling back on hiring and that more small businesses are closing permanently. Credit card spending has been stuck at about 10 per cent below year-ago levels for nearly a month, according to JPMorgan Chase, after having risen steadily from mid-April to mid-June. 

A sign announces a store closing in Niles, Ill. Nearly 73,000 small businesses have been forced to close for good since March. (Nam Y. Huh/The Associated Press)

In May and June, businesses had rehired enough to more than offset the wave of layoffs. But the Census data now suggests that the economy is losing jobs again. 

According to data from the consumer-review website Yelp, nearly 73,000 small businesses have closed for good since the pandemic intensified in March, up 28 per cent from mid-June. 

"Every time a business closes, that makes the recovery longer and harder, so that worries me," said Ernie Tedeschi, an economist at the investment bank Evercore ISI. 

People deciding which bills to pay

Many jobless Americans say they fear that a slow and prolonged recovery would be hard to survive without the $600 weekly aid from the federal government. If that payment were eliminated, total unemployment benefits would shrink by one-half to two-thirds, depending on a recipient's state. 

Melissa Bennett has been using the federal jobless benefit to help pay her $1,900 monthly health insurance bill, which she's paid on her own since losing her employer-sponsored plan in June. That's when she was laid off from her front desk job at a vacation time-share rental in Myrtle Beach, South Carolina, a beach town that has become a COVID-19 hot spot.

Without the $600, her unemployment benefit will fall to just $200 a week, and she'll have to decide whether to pay her mortgage or her utilities first.

Many analysts say they worry that the expiration of the federal payments will cause a wave of evictions of renters who won't be able to afford their monthly payments. Even before the pandemic, spiking rents in most major cities were squeezing the finances of lower-income families. 

One in four renters — 11 million households —  were spending more than half their income on rent before the recession, said Priscilla Aldomovar, CEO of Enterprise Community Partners, a non-profit group focused on affordable housing. 

Enterprise owns 13,000 rental units, and Aldomovar said that so far, the renters have largely kept up with their payments, which she attributes to the federal aid. 

"It's very precarious, but it's been held together by the stimulus," she said.

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