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PNC Chief Economist Gus Faucher: Initial UI Claims Fall to Lowest Level Since November

Michigan Business Network
February 25, 2021 1:00 PM

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But Weather Likely a Factor
  • Initial claims for unemployment insurance in the week ending February 2020 fell to their lowest level since late November. Bad weather likely was behind the big drop in claims, however.
  • The total number of people receiving some form of unemployment insurance rose in the week ending February 6. Unemployment remains a serious problem for the U.S. economy.
  • Job growth should pick up over 2021 as the economy recovers from the pandemic.

Initial claims for unemployment insurance fell to 730,000 in the week ending February 20, the fewest initial claims since late November. However, bad weather and power outages in many parts of the country likely prevented individuals from filing claims, and they will increase in the week ending February 27 as activity returns to normal and laid-off workers have the opportunity to file claims. Claims fell 111,000 from 841,000 in the week ending February 13 (revised down from 861,000). This was the largest one-week drop in claims since August, when the labor market was in the initial recovery from the Viral Recession.

Outside of the latest results, initial claims have been running around 800,000 to 900,000 per week in 2021, up from around 700,000 to 800,000 in late 2020. Layoffs have increased this year as coronavirus cases rose in late 2020 and early 2021. Initial claims were around 200,000 per week in early 2020, before the pandemic, then surged to a peak of almost 7 million in the early spring as the pandemic came to the U.S. They fell steadily in the spring and summer, but have were flat in the fall, before moving somewhat higher in 2021.

Total claims under all unemployment insurance programs, including pandemic-related programs, were 19.043 million in the week ending February 6, up more than 700,000 from the previous week (not seasonally adjusted). The number of people receiving some form of unemployment benefit peaked at more than 32 million in June, then declined to around 18 million by the end of 2020. Since then claims have stabilized, in part because of a softer labor market, in part because of issues with claiming benefits in the wake of program expiration and then reauthorization at the end of 2020. Total beneficiaries were around 2 million in early 2020, so the number of unemployed remains extremely elevated.

There were 4.419 million people receiving unemployment benefits under regular state programs in the week ending February 6, down 101,000 from the previous week. After peaking at almost 25 million in June, the number of claims for regular state programs has steadily declined. Some of the decline has come from people moving from unemployment to employment, but some has also come from beneficiaries using up their eligibility and moving into pandemic-related programs. Before the pandemic, continuing claims were about 1.7 million per week.

Don’t read too much into the big drop in unemployment insurance claims in the week ending February 20. Winter weather throughout much of the country and widespread power outages in Texas likely prevented some laid-off workers from filing for unemployment insurance benefits. Claims will be much higher in the week ending February 27, both from catch-up applications for benefits, and from layoffs associated with the weather and power outages.

After monthly job growth in the millions in May through August, the U.S. economy added an average of just 30,000 jobs per month in the three months through January. Rising coronavirus cases and fading fiscal stimulus weighed on job growth in late 2020 and early 2021. PNC is expecting solid job growth of around 200,000 for February when the Bureau of Labor Statistics releases the monthly employment situation report on Friday, March 5. Because the winter storms and power outages were after the data for the monthly employment report was collected, they will not affect the February employment numbers.

Job growth should pick up throughout 2021 and end the year very strong. Congress passed new fiscal stimulus at the end of 2020 that contributed to a big increase in retail sales in January and Congress is set to pass a stimulus bill of almost $2 trillion over the next few weeks. In addition, housing and business investment are solid, coronavirus cases are falling, vaccine distribution continues, and better weather will allow for more economic activity. PNC expects the unemployment rate to end 2021 at around 5%, down from 6.3% in January and a peak of 14.8% in April 2020. However, that would still be well above the 3.5% unemployment rate in early 2020, before the pandemic.

One issue policy makers will need to address in the stimulus bill is the scheduled expiration of pandemic-related unemployment benefits in mid-March. With tens of millions of people still receiving unemployment insurance, the loss of these benefits would put a huge dent in consumer spending.

The PNC Financial Services Group, Inc. is one of the largest diversified financial services institutions in the United States, organized around its customers and communities for strong relationships and local delivery of retail and business banking including a full range of lending products; specialized services for corporations and government entities, including corporate banking, real estate finance and asset-based lending; wealth management and asset management. For information about PNC, visit www.pnc.com.

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