US labor market recovery restoring as unemployment rolls shrink

The number of Americans filing new claims for unemployment benefits declined further last week. At the same time, layoffs dropped to their lowest level in just over 21 years in July as companies held on to workers amid a labor shortage.

The weekly unemployment claims report from the Labor Department on Thursday, the most timely data on the economy’s health, also showed the number of people on state jobless rolls dropped in late July to its lowest level since March 2020, when mandatory closures of nonessential businesses were enforced to slow the first wave of COVID-19 cases.

Though the data falls outside the survey period for July’s closely watched employment report, it bolstered economists’ expectations for another month of strong payrolls gains. The employment report for July is due to be released on Friday.

“From an employment-estimating perspective, this suggests a hefty increase in non-farm payrolls tomorrow,” said Chris Low, chief economist at FHN Financial in New York.

Initial claims for state unemployment benefits fell 14,000 to a seasonally adjusted 385,000 for the week ended July 31. Data for the prior week was revised to show 1,000 fewer applications received than previously reported.

A restaurant advertising job attracts workers in Oceanside, California, U.S., May 10, 2021. REUTERS/Mike Blake

Economists polled by Reuters had forecast 384,000 applications for the latest week. There is no sign yet that a resurgence in COVID-19 infections, driven by the Delta variant of the coronavirus, is disrupting economic activity. Nearly half of the population has been fully vaccinated.

Claims fell in Florida, one of the states hardest hit by the current COVID-19 wave. There were also notable declines in applications in Texas, Pennsylvania, Michigan, and Tennessee.

“The latest week’s data was the first in the thick of rising Delta variant COVID-19 cases, and so far that rise in infections hasn’t pushed up layoffs,” said Robert Frick, corporate economist at Navy Federal Credit Union in Vienna, Virginia. “Together with microdata such as airline flights and restaurant bookings, it appears that for now, the economy overall is holding fast against the fourth wave of infections.”

There are still concerns that rising coronavirus cases could slow the labor market recovery amid a shortage of workers. Claims remain above their pre-pandemic level of 256,000, though they have dropped from a record 6.149 million in early April 2020. There were a record 9.2 million job openings as of the end of May. About 9.5 million people are officially unemployed.

In the second quarter, the economy fully recovered from the sharp loss in output suffered during the very brief pandemic recession. A separate report from the Commerce Department on Thursday showed the U.S. trade deficit surged to a record high in June as efforts by businesses to rebuild inventories to meet robust consumer spending drew in more imports.

U.S. stocks opened higher. The dollar was steady against a basket of currencies. U.S. Treasury prices fell.

EYES ON JULY PAYROLLS

The claims report showed the number of people continuing to receive benefits after an initial week of aid dropped 366,000 to 2.930 million during the week ended July 24, the lowest level since the pandemic started. The decline in the so-called continuing claims was led by California, which saw 256,370 people dropping off unemployment rolls.

Continuing claims also decreased in some of the states led by Republican governors that terminated federal government benefits before their Sept. 6 expiration. Republicans and business groups have blamed enhanced unemployment benefits, including a $300 weekly payment from the federal government, for the labor crunch.

According to a Reuters survey of economists, the Labor Department is expected to report on Friday that nonfarm payrolls increased by 870,000 jobs in July. The economy created 850,000 jobs in June.

July’s non-farm payrolls estimate is highly uncertain, with labor market indicators mixed. In a separate report on Thursday, global outplacement firm Challenger, Gray & Christmas said job cuts announced by U.S.-based employers fell 7.5% to 18,942 in July, the lowest number since June 2000. So far this year, employers have announced 231,603 job cuts, down 87.5% compared to the same period last year. But the pace is slowing.

Data from Homebase, a payroll scheduling and tracking company, showed its employee’s working index rose moderately in July from June. The ADP employment report on Wednesday showed the smallest private payrolls gain in five months in July.

That was, however, countered by two Institute for Supply Management surveys showing a rebound in manufacturing and services industries employment last month. In July, the Conference Board’s labor market differential, derived from data on consumers’ views on whether jobs are plentiful or hard to get, hit its highest level since 2000.

(Reporting by Lucia Mutikani; Editing by Dan Burns and Paul Simao)