Unemployment claims for the last week of May totaled 1.9 million, a painfully high number, but the lowest since the novel coronavirus started spreading widely back in March, a sign the economy may no longer be in free fall.
The slowing in jobless claims doesn’t mean the United States has any less deep of a hole to dig itself out of.
More than 40 million people have applied for unemployment benefits during the pandemic, and roughly 21.5 million are currently receiving them, previously unimaginable figures that wiped out a job market that saw unemployment at historic lows as recently as February.
Last week’s initial jobless claims are still more than double the pre-coronavirus record of 695,000 set in October 1982, as they have been every week since mid-March this year. Unemployment rates by state are highest in Nevada (25 percent), Maine (23 percent), Michigan (23 percent), Hawaii (20.6 percent) and New York (19 percent).
The total number of people receiving benefits grew slightly in the last week of May after dipping the week before, a shift that many economists described as a point of concern. It indicates more people are filing for unemployment than going back to work.
The Labor Dept reports nearly 1.9 million new unemployment claims last week. Continuing claims did not decline as one would have hoped. There are signs the economy has bottomed, but there's a long way to go before we get anywhere even close to normal or economically healthy.— Mark Hamrick (@hamrickisms) June 4, 2020
“Whatever optimism there is from seeing some people return to work, we’re not seeing a drastic move off unemployment,” said Jay Shambaugh, a senior fellow at the Brookings Institution. “If anything we’re seeing a stable number of people on unemployment. Last year it was around 1.5 million.”
Including the new supplemental funds for gig workers, about 30 million people are receiving unemployment benefits.
As states have lifted some of their most severe restrictions in recent weeks, more businesses have reopened — at least partially — and brought back workers. But there is still no sense of when commerce will resume at the scale it existed at late last year, or whether there will be a second wave of the virus in the fall and winter. This could create an economy that is trapped between both realities, putting pressure on companies that might not be able to survive at half capacity and wreaking havoc on state and local budgets that could lead to more layoffs later this year.
The unemployment rate for May, due out Friday, is expected to be close to 20 percent, a level not seen since the 1930s. The Congressional Budget Office released projections this week showing it doesn’t expect the United States to recover fully from the crisis until 2030.
But the upswing, however small, is encouraging, economists said.
“It’s a sign that things are not getting as worse as they were before,” said Nick Bunker, the economic research director at Indeed Hiring Lab. “We have seen a reduction in the pace of people becoming jobless. So that’s positive. But we’re still seeing claims at astronomical levels than what we saw before this crisis.”
The weekly numbers aren’t the only positive signs in the economy. Private payrolls declined by only 2.76 million people in May, according to the ADP report released Wednesday, well below many analysts estimates of 8 to 9 million. Mortgage applications have surged in recent weeks amid record low interest rates. Consumption of oil and petroleum products is up. The number of travelers at airports, as measured by TSA precheck numbers, has begun increasing in recent weeks. Even restaurant reservations have inched up.
The Federal Reserve, too, has scaled back its purchases of government bonds, a vote of confidence that the worst is probably over. The widely watched S&P 500 index is up more than 39 percent since late March and just registered the strongest 50-day winning streak since 1952, according to Bespoke Investment Group.
Mark Zandi, the chief economist at Moody’s, declared the recession caused by the pandemic was probably over, almost as abruptly as it started.
“This covid recession will go down as the shortest and arguably the most severe in history,” he said in an interview.
Still, the Great Recession officially ended in June of 2009 but jobs didn’t fully rebound until 2017, a reminder that the pain can linger long after a recession is technically over. The decline in real GDP during the financial crisis was about 4 percent, this pandemic recession’s figure is about a 12 percent decline, from the fourth quarter in 2019 to the second quarter in 2020, Zandi said, another indicator that digging out fully will be hard.
Experts warn that a full recovery could take years. The service sector, usually the strongest part of the U.S. economy, has been hit especially hard.
“We think it could take 32 months to get back to the February peak in this series, i.e., by October 2022,” economist Ed Yardeni wrote in a morning note to clients.
The Congressional Budget Office said this week that the pandemic will shrink the size of the U.S. economy by nearly $8 trillion in the next decade, and that’s assuming there is not a second or third wave of the coronavirus that cripples the economy again in coming months.
The manufacturing sector is a telling example of the just how modest the rebound is.
The industry experienced its worst contraction in April since the Great Recession. The Purchasing Managers’ Index slumped to 41.5 in April, signaling a deep contraction. In May, the index rose to 43.1, an improvement but far below the 50-mark that is considered healthy and expansionary.
Many contradictions are apparent in the job-market data, Indeed’s Bunker said.
On one hand, job prospects are improving — the number of jobs posted on the company’s site in May was 5 percent higher than in April. But those numbers were still 34 percent lower at the end of May than at the same date in 2019 — a staggering drop.
“It is, at most, an extremely partial rebound,” Bunker said. “Postings are still growing at a rate far slower than we saw last year. I think it’s worthwhile celebrating that the pace of things getting worse has slowed down. But that means we haven’t hit a bottom yet. There are still a fair amount of folks losing their jobs and folks not hiring yet.”
When it comes to processing unemployment claims, states appear to have gotten through many of the bottlenecks that had jammed up their systems in March and April, said Chad Stone, the chief economist at the Center on Budget and Policy Priorities, a left-leaning think tank.
“The state unemployment systems are laboring with a lot of outdated tech and had to bring on a huge amount of people — it was kind of a mess in early weeks,” he said. “But give them credit — many of them are now up and running and have processed these claims. The big hump is over.”
some of the weekly numbers that states are processing are due to backlogs, making them an unreliable snapshot of the current economic picture.
Andrew Van Dam contributed to this report.