US weekly jobless claims drop; layoffs tumble to 24-year low

WASHINGTON: The number of Americans filing new claims for jobless benefits fell last week, while layoffs dropped to their lowest level in more than 24 years in August, suggesting the labor market was charging ahead even as new COVID-19 infections surge.

The weekly unemployment claims report from the Labor Department on Thursday, the most timely data on the economy's health, also showed the number of people on state unemployment rolls tumbling to a 17-month low in the third week of August.

Declining layoffs should help to ease concerns about the economy even if August's closely watched employment report on Friday shows a slowdown nonfarm payrolls growth.

"Regardless of tomorrow's report, keep in mind that the weekly jobless figures say the labor market screws continue to tighten," said Chris Rupkey, chief economist at FWDBONDS in New York. "There is no sign that the Delta variant is leading to job losses across the country."

Initial claims for state unemployment benefits dropped 14,000 to a seasonally adjusted 340,000 for the week ended Aug. 28, the lowest level since mid-March 2020 when mandatory closures of nonessential businesses were enforced to slow the first wave of coronavirus cases.

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Economists polled by Reuters had forecast 345,000 applications for the latest week.

Claims have dropped from a record 6.149 million in early April 2020. They, however, remain above the 200,000-250,000 range viewed as consistent with healthy labor market conditions.

The latest wave of COVID-19 infections, driven by the Delta variant of the coronavirus, and a relentless shortage of workers have left some economists anticipating a sharp slowdown in August job growth. Labor market indicators last month were mixed.

The Institute for Supply Management's measure of factory employment contracted in August and fell to its lowest level since November.

The release of the ADP National Employment Report on Wednesday showed that private payrolls increased by only 374,000 jobs in August. The report, however, has a very poor record predicting the private payrolls count in the Labor Department's more comprehensive employment report.

But hiring by small businesses accelerated. The Conference Board's labor market differential - derived from data on consumers' views on whether jobs are plentiful or hard to get - slipped, but it was not too far from July's 21-year high.

While last week's claims data has no bearing on August's employment report as it falls outside the survey period, applications trended lower last month. The claims report showed the number of people continuing to receive benefits after an initial week of aid plunged 160,000 to 2.748 million in the week ended Aug. 21, the lowest level since mid-March 2020.

US stocks opened higher. The dollar was steady against a basket of currencies. US Treasury prices rose.

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Expanded Benefits Expiring

According to a Reuters survey of economists, nonfarm payrolls likely increased by 750,000 jobs last month after rising by 943,000 in July.

"We expect the jobs report to show that the economy continued to add jobs at a rapid pace in August, defying COVID-19 Delta variant outbreaks across the country," said Julia Pollak, chief economist at ZipRecruiter.

That optimism was underscored by a separate report on Thursday from global outplacement firm Challenger, Gray & Christmas showing job cuts announced by US-based employers decreased 17% to 15,723 in August, the lowest number since June 1997. So far this year, employers have announced 247,326 job cuts, down 87% compared to the same period last year.

"Companies are much more concerned about their talent getting poached than with finding ways to cut staff. They are in full retention mode," said Andrew Challenger, senior vice president at Challenger, Gray & Christmas.

The pandemic has upended labor market dynamics, creating worker shortages even as 8.7 million people are officially unemployed. There were a record 10.1 million job openings at the end of June. Lack of affordable childcare, fears of contracting the coronavirus, generous unemployment benefits funded by the federal government as well as pandemic-related retirements and career changes have been blamed for the disconnect.

The labor crunch is expected to ease starting in September. The government-funded unemployment benefits lapse on Sept. 6 and schools are reopening for in-person learning.

But soaring COVID-19 cases could cause reluctance among some people to return to the labor force. The claims report showed about 12.2 million people were receiving benefits under all programs in mid-August. This number is expected to drop sharply after next Monday's expiration of government programs.

The labor market recovery is gaining steam despite a slowdown in economic activity caused by the latest coronavirus wave, the fading boost from fiscal stimulus and supply constraints.

But the moderation in growth is likely to be mitigated by a shrinking trade deficit. The trade gap narrowed 4.3% to $70.1 billion in July, the Commerce Department said in a separate report on Thursday.

Economists have sharply marked down their gross domestic product estimates for the third quarter to a low as a 2.9% annualized rate from as high as a 9% pace. The economy grew at a 6.6% rate in the second quarter.

"The slowdown is not broad-based and primarily reflects payback from stimulus spending and ongoing supply issues," said Ellen Zentner, chief US economist at Morgan Stanley in New York.