The Labor Department's latest jobless claims report showed that employers across the U.S. are still laying off workers and added urgency to calls for an extension to bolstered unemployment benefits, economists said.
The fact that another 1.5 million U.S. workers filed jobless claims for the first time last week shows how long-lasting the economic fallout from Covid-19 will be and supports the argument to continue the souped-up unemployment benefits first passed in March, said Michelle Meyer, head of U.S. economics at Bank of America Merrill Lynch.
"I think the fact that claims remain elevated shows that there is still firing, highlighting the residual pain in the economy from such a large shock," Meyer wrote in an email. "Such a large number of people on unemployment insurance suggests that government benefits will be needed for longer in order to avoid a negative shock to consumer spending."
As part of Congress's historic $2.2 trillion CARES Act, Americans who qualify for state unemployment benefits have also received an additional $600 a week as part of the federal government's effort to ease the impact on the overall economy. But those payments are scheduled to end after July 31, which could threaten critical income for the tens of millions of unemployed Americans who receive the disbursements.
Meyer's comments came in light of the Labor Department's disappointing jobless claims report, which showed 1.5 million Americans filed for jobless benefits for the first time during the week ended June 13. Although the figure showed initial claims decelerated again last week, the report marked the 13th consecutive week of more than 1 million initial claims, a sum unheard of prior to the Covid era.
Continuing claims, or those who have been receiving unemployment benefits for at least two weeks, ticked lower to 20.5 million, a decline of only 62,000 from the previous week.
The high initial and continuing jobless claims in prior weeks, combined with the looming July 31 deadline, may have moved Federal Reserve Chairman Jerome Powell to warn Congress on Wednesday that additional fiscal spending may be needed to prevent a more calamitous fall in U.S. growth.
"It probably is going to be important that it be continued in some form. I wouldn't say what form, but you wouldn't want to go all the way to zero on that," Powell told the House Financial Services Committee on Wednesday.
"I would think that it would be a concern if Congress were to pull back on the support that it is providing too quickly," Powell said earlier in the hearing. "I do think it would be appropriate to think about continuing support for people who are newly out of work and smaller businesses who are struggling to get through what will be a temporary period as the economy moves back up toward higher levels of activity."
But Democrats and Republicans remain split on whether to expand the $600 a week unemployment benefits.
House Democrats, who passed another $3 trillion stimulus package that would extend the enhanced unemployment benefits until January, say the elevated jobless claims data are proof that more support is needed. But Senate Republicans — as well as the White House — have opted for a wait-and-see approach and don't see an urgent need to prolong the $600 a week payments.
Larry Kudlow, President Donald Trump's chief economist advisor, told CNN over the weekend that the administration doesn't want to extend the unemployment benefits past July 31, but would be open to a return-to-work bonus.
Harvard labor economist and professor Lawrence Katz says he supports Fed Chair Powell's view and that he believes the risk posed by prolonged and widespread unemployment to the U.S. economy is enough to warrant an expansion to the CARES Act benefits.
"I strongly agree with the message of Fed Chair Powell," Katz told CNBC in an email. "The labor market and economy remain in dire circumstances and more support especially for the unemployed, low-wage workers, and state and local governments is necessary. We definitely need to extend the expanded pandemic unemployment insurance program in some form, increase SNAP generosity and availability given the huge surge in food insecurity in the Census pulse tracking survey."
Eric Winograd, senior economist at AllianceBernstein, added that the length of time until U.S. employers start adding employees back with vigor will prove key to determining the severity of the recession.
"While there is some improvement apparent in the claims data relative to where we were a few weeks ago, losing more than a million jobs per week makes clear that the labor market remains in deep distress," Winograd wrote. "Our concern is that once stimulus checks are spent and expanded unemployment benefits expire in a few weeks there will be a very large gap in household incomes that will impair the economy more broadly."
"If the pace of labor market improvement doesn't accelerate significantly in the next few weeks, more stimulus is going to be needed to keep the economy on track for a quick recovery," the economist wrote.
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