; Total Claims Fell at End of 2020
Initial claims for unemployment insurance jumped by 23% in the week ending January 7 to 965,000. This was the highest level of initial claims since August. Claims had been between 700,000 and 900,000 between September and December. Initial claims were around 200,000 before the pandemic, then surged to almost 7 million in late March as businesses shut down because of the pandemic. They then fell through the summer, before stabilizing in September.
It’s unclear if the big increase in initial claims in early January reflects a substantial weakening in the job market. Claims can be very volatile around the holidays, and it could also be that changes to the unemployment insurance program enacted at the end of the year caused more people to apply for benefits. The trend over the next few weeks will demonstrate whether layoffs are increasing in early 2021 or if this is just noise in the data.
There were 5.271 million people receiving unemployment insurance under regular state programs in the week ending January 2, up 4% from the previous week. This is only the second increase in continuing claims in the last 18 weeks. Continuing claims have been falling because some people are leaving unemployment for jobs, but also because they are using up their eligibility for benefits and are moving to special pandemic-related programs. Continuing claims peaked at almost 25 million in early May, but have fallen steadily since then as the labor market has improved, and more recently as claimants have used up their eligibility. Before the pandemic continuing claims were around 2 million per week.
There were 18.407 million people receiving some form of unemployment assistance in the week ending December 26 (not seasonally adjusted), down 4% from the previous week. Since peaking at more than 32 million in June, the number of total beneficiaries has fallen gradually as the job market has improved. Still, unemployment remains extremely high; there were just 2.2 million total beneficiaries at the same point in 2019.
The job market has weakened in late 2020 and early 2021. Employment fell in December, for the first time since April, as caseloads hit record highs and state and localities re-imposed some restrictions on economic activity. However, it is unclear if the huge jump an initial claims in the first week of January is a substantial further worsening in the labor market, or is due to issues in the data related to the holidays and changes to the program. Still, conditions in the job market are softer in early 2021 than they were during the summer and fall of 2020, and employment could decline again in January.
But brighter days are ahead for the labor market. Vaccine distribution continues, which should allow for a gradual resumption of normal economic activity. Congress passed a big stimulus bill at the end of 2020 that will support consumer spending and prevent business failures, and another big stimulus package could come under the Biden administration. And warmer spring weather should help reduce transmission of the virus. It will take a few months, but job growth will be very strong in the second half of 2021.
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