A jump in jobless claims back above 1 million could be a warning that the labor market faces a setback and the economy's comeback could be slowing.
Economists said the reason for the rise back to 1.1 million claims in the week of Aug. 15, from the previous week of a revised 971,000 was unclear but some say the economy needs more stimulus to keep rebounding. A new fiscal stimulus package has stalled in Congress, as Democrats and Republicans disagree on how much to spend to help the economy and millions of unemployed Americans.
"If we continue to see the pullback and nothing is done by Washington, for state and local government as well, the headwinds going in to the fall are going to be huge and they could easily be a riptide that pulls us under again," said Diane Swonk, chief economist at Grant Thornton.
The number of new claims for unemployment benefits had dropped over the previous two weeks, and that coincided with the end of a $600 weekly federal stimulus check to supplement unemployment benefits. Some economists had seen the decline in claims as a sign that some of those on unemployment were returning to jobs because of the loss of that added benefit.
The number of individuals who have been claiming benefits for more than one week continued to decline, falling by 636,000 to 14.84 million, in the week ending Aug. 8. The continuing claims data series is delayed by one week.
"[Claims] were up in 36 states," said Swonk. "What we're seeing is it's reinforcing that not only is the economy stalling but it may be losing ground."
The $600 weekly supplement for the unemployed has become a political football, as House Democrats and Senate Republicans and the White House continue to disagree how big another stimulus package should be. Democrats want to keep the $600 weekly payment, while the Senate proposes a $200 payment instead.
The White House, meanwhile, authorized $300 a week for individuals from FEMA funds, plus asked states to come up with an additional $100. States process the funds individually, so it is unclear how quickly checks will reach many of the unemployed.
"The claims numbers have been distorted for several months in my view. It isn't giving us a great read on the labor market," said Stephen Stanley, Amherst Pierpont economist. "I'm reluctant to draw too much out of these numbers. We're still through July seeing pretty good gains. I suspect that August payroll number will be positive but smaller than July. I don't think the mini lockdowns that occured in June had a huge impact on employment."
The economy added 1.8 million jobs in July. Besides the 14.8 million people collecting ongoing state benefits as of Aug. 8, there were another 11.2 million people collecting benefits from the federal Pandemic Unemployment Assistance program as of Aug. 1.
"Maybe things are not quite as good out there as we thought. It's been a couple weeks since the $600 weekly unemployment checks have gone away. That's pulling out the support from the economic recovery...There's certainly no more PPP. The $1,200 checks are long gone. This isn't a self-sustaining recovery," said Chris Rupkey, chief economist at MUFG Union Bank. "We still need the support of the federal government, and that support has been pulled away."
Rupkey said the weekly data is difficult to read. "It just tells you there's a real question mark about what's happening here in the month of August, and it doesn't look good. All the federal stimulus money was May, June, July and it's run out, and maye this is the first sign the economy is not 'A okay,' and spending is going to sink back in the second half of the third quarter. It may be a 25% gain in real GDP in the third quarter, but it's going to go out on a soft note."
Economists said the lack of new relief for small businesses through the Paycheck Protection Program, or PPP, could also be a factor in the increase in claims, since that program was designed to encourage employers to retain employees. "Allowing a second bite of the apple for certain firms in the PPP makes a lot of sense," said Stanley, noting the initial program was created when it was expected the virus would have run its course by now.
The impact of the stimulus is difficult to gauge. Some other data has shown improvement, like the pickup in inflation measures and a sharp recovery in retail spending to a level better than last year.
Walmart's chief financial officer this week said the stimulus funds in the hands of consumers was clearly a factor in second quarter sales, and spending tapered as stimulus ran out.
"Stimulus was definitely impactful to the consumer in the second quarter, and we're watching what's going on in Washington, and how we're going to progress with a new stimulus package," Walmart CFO Brett Biggs said. "I think certainly it would be helpful for consumers."
Congress is expected to ultimately agree to a stimulus package, but some economists fear the rebound in the economy could suffer more if it comes too slowly. A new package is expected to include another one-time payment to individuals and families, and states and local governments are also hoping for some relief as they face budget constraints.
Gus Faucher, PNC's chief economist, said he thought the economic shutdowns had more to do with the rise in claims, but if there's no new stimulus deal the economy will be hurt.
"The loss of benefits, reducing household income by about $700 billion a month, could become a drag on the recovery as some consumers are forced to cut back on their spending. An inability of Congress and the Trump administration to agree on additional stimulus measures is a downside risk to PNC's forecast of a solid economic recovery through the rest of 2020 and throughout 2021," he wrote in a note.