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The Labor Market Ends the Year on a Positive Note but The Outlook Remains Clouded – Robert Hughes (01/05/2021)

Initial claims for regular state unemployment insurance totaled 787,000 for the week ending December 26, down 19,000 from the previous week’s upwardly revised tally of 806,000 (see first chart). Claims are back below 800,000 following three consecutive weeks above. The four-week average was 836,750, up 17,750 from the prior average and the highest since October 3. The latest week is the 41st week of historically massive claims. Prior to the lockdowns, initial claims averaged 212,000 over the first 10 weeks of 2020. A second consecutive decrease in initial claims is a somewhat hopeful sign but renewed government restrictions on consumers and businesses suggest significant risk for the outlook. Persistent initial claims at such a historically high level remain a threat for the labor market recovery and the economy (see first chart).

The number of ongoing claims for state unemployment programs totaled 5.393 million for the week ending December 12, down 64,501 from the prior week, the second decrease in a row. State programs have been trending lower since early March, but the declines have slowed noticeably in recent weeks (see second chart). For the same week in 2019, ongoing claims were 1.796 million.

Continuing claims in all federal programs also fell in the latest week, coming in at 14.170 million for the week ending December 12, down 735,340. Since the beginning of September, claims in all Federal programs have averaged 14.223 million (see second chart).

The total number of people claiming benefits in all unemployment programs including all emergency programs was 19.564 million for the week ended December 12, down 799,841 from the prior week. While continuing claims have trended lower for state programs, Federal programs have remained in a flat trend.

The decreases in the latest week for both categories are favorable signs but renewed government restrictions on consumers and businesses amid resurging Covid-19 cases pose a significant threat to the outlook for economic growth. The longer the virus surge continues, consumers remain restricted, and businesses remain closed or limited, the more uncertain a labor market recovery becomes and the higher the probability of a slow and drawn-out economic recovery.

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