Economic strain persists even as businesses reopen

Employers continue to lay workers off while states struggle through a backlog of unemployment claims, a sign of the persistent strain the economy faces from the coronavirus pandemic even as businesses begin to reopen.

The Labor Department reported today that nearly 1.9 million Americans filed new claims for state unemployment benefits last week, continuing the decline from the more than 6 million who submitted applications in a single week in March but still a remarkably high level.

In addition, there were 623,000 new claims for Pandemic Unemployment Assistance, the federal program intended to help the self-employed and others not normally eligible for state jobless benefits.

The overall number collecting state benefits increased by almost 650,000 to a seasonally adjusted total of 21.5 million, showing that even as some businesses reopen and workers come off the rolls, others are being newly laid off or belatedly starting to receive benefits.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said the weekly claims “are not falling as fast as I’d like them to fall or thought they would be falling.”

“Let’s not kid ourselves,” he added. “This is still an astonishing rate of layoffs.”

Since mid-March, 42.6 million jobless workers have applied for state aid, marking the worst period for unemployment since the Great Depression. The seasonally adjusted data does not include those who have applied under the Pandemic Unemployment Assistance program.

The government count also leaves out people who were stymied in their attempts to access the benefits or were too disheartened or confused to try. Mistakes, delays in reporting and possible double-counting in some areas also complicate efforts to arrive at a precise total.

Some people out of work have gone months without government assistance as states grapple with technical glitches and a flood of claims. Payments have abruptly evaporated for some workers, who have struggled to reach overwhelmed unemployment administrators for an explanation.

Bogus sites that mimic government unemployment portals, and fraudulent claims submitted using stolen personal data, have prompted many states to impose security measures that complicate the approval process.

Diane Swonk, chief economist at the accounting firm Grant Thornton, said the recent looting and vandalism in many cities further clouded the employment outlook.

“The unrest adds insult to injury in an economy already struggling to reopen,” she said. “It could delay workers being called back or cause people to be laid off again.”

For many jobless workers, stability remains a distant prospect. On Friday, the Labor Department will report the May unemployment rate, which many economists say could approach or exceed 20%, up from 14.7% in April.

The layoffs have grown from the restaurant workers and hotel employees who lost their jobs early in the pandemic to people in management positions, economists said. And state unemployment offices are wading through a backlog of claims, processing older applications that may only now be appearing in official counts.

The economic rebound will probably unfurl in two phases, said Gregory Daco, chief U.S. economist at Oxford Economics. The first will happen quickly, as companies call back certain employees to help reopen restaurants, retailers and other operations. The second step will drag on for months, as lingering fears of infection and the disruption in earnings weigh on spending and affect the ability of businesses, especially small ones, to return to normal.

He said it was encouraging that initial applications for state benefits and for the Pandemic Unemployment Assistance program declined last week but added that the volume was still stunning and likely to remain elevated.

“We’re witnessing a gradual evolution from temporary to persistent labor market damage,” he said.

The pandemic has gone on so long that some workers are reaching the end of their allotment of benefits — and some could face more delays as states try to carry out a federal program that offers an extra 13 weeks of aid.

“There might be a series of income cliffs coming up as benefits fade out, and tranches of the population that may have helped spur a rebound in spending may drop off,” Daco said.

Unemployed workers in most of the country are eligible for 26 weeks of regular state benefits, which would give someone laid off in mid-March a cushion until September. States like Michigan and Kansas, which usually offer fewer weeks of payments, recently raised their maximum allowances to 26 weeks. But Florida and North Carolina cap their unemployment payouts at 12 weeks.

The federal extension program, known as Pandemic Emergency Unemployment Compensation, could give workers a lifeline into December. Some states may offer additional extended benefits.

As businesses reopen, jobless workers are starting to seek in-person help. At job fairs around the country, hospitals are seeking nurses and school districts are looking for bus drivers. CareerSource Florida, a state agency helping job seekers, recently began offering on-site assistance by appointment. Last month, the Alabama Department of Labor set up stations around Montgomery to help people with their claims but limited the number of visitors and suggested that they bring lawn chairs and snacks to pass the time in line.

The increased activity has led to optimism that the job market has started “crawling out of the hole,” said Torsten Slok, chief economist at Deutsche Bank Securities. “We do have the worst behind us.”

Eric Latham, a 26-year-old restaurant worker living in Fayette, spent days calling the Alabama agency after nearly $1,600 in benefits failed to show up in his account. While updating his unemployment claim one week, he noted that he had briefly worked for his employer for one day during his furlough, a detail that seemed to cut off his payments.

“That was two weeks of very little income — that set me back,” he said. “I need it. I have bills. But I’ll probably just have to eat it.”

Latham returned to work today, despite reservations about the coronavirus. Reopening efforts are proceeding slowly, as government officials and business owners try to stave off more infections.