Unemployment Benefit Rolls Shrink, But New Applications Rise

In recent weeks about half of states have acted to end enhanced and extended unemployment benefits. The end of pandemic programs in Texas drove the latest decrease.

“The expectation is that this will spur more job-seeking among unemployed Texans as demand for labor improves,” said Gus Faucher, chief economist at PNC Financial Services. “Many employers have said that they would like to hire, but that the supply of workers has not kept up.”

Meanwhile, initial jobless claims, a proxy for new layoffs, rose by 51,000 to a seasonally adjusted 419,000 for the week ended July 17, the Labor Department said Thursday. The increase returned the new claims near to levels recorded in early June. The four-week moving average, which smooths out volatility in the weekly figures, increased by 750 to 385,250.

Economists said the increase could reflect seasonal adjustment variations in the data, which is typical in July, when the timing of the Independence Day holiday and scheduled factory shutdowns vary year to year.

The largest state-level increase came in Michigan, a state where auto production has been disrupted due to chip shortages. Kentucky, another state with auto plants, also reported a large rise in new jobless claims.

“Typically you’d see some plant shutdowns in autos, as well as other industries in the early part of July. Then those people would come back in the second half of the month,” said Stephen Stanley, chief economist at Amherst Pierpont Securities.

Economists also say layoffs and unemployment can remain elevated even when hiring is strong. That is because people who recently lost jobs might not be located near firms that are hiring, or might not have the skills necessary to take the job.

Despite last week’s increase, initial jobless claims and continuing payments have both trended down this year, largely reflecting an improving economy and steady hiring.

U.S. employers added 850,000 jobs in June, the largest gain in 10 months, and workers’ wages rose briskly, signs of a strengthening labor market.

Overall benefit payments had surged in the spring of 2020, as millions of laid-off workers sought aid through state programs and others tapped programs established in response to the rise in unemployment during the pandemic. One new program made benefits available to self-employed and gig workers, who aren’t typically eligible, and another allowed unemployed workers to remain on benefits beyond the six months or less most states allow. Washington lawmakers also made benefits more generous, adding $300 a week on top of state payments since late December.

Since rising above 33 million in June 2020, the number of paid unemployment benefits has slowly fallen, though the pace of decline increased in recent weeks as many states moved to end pandemic programs. Pandemic program data isn’t seasonally adjusted.

Continuing unemployment payments through regular state programs decreased by 29,000 to a seasonally adjusted 3,236,000 for the week ended July 10, also the lowest level since March 2020. Most people on those programs could remain on benefits if they haven’t found employment, though many states have removed the $300 enhancement.

Many Republicans and some economists say the benefits provide a disincentive to taking lower-wage jobs. Many Democrats and other economists say the payments were a lifeline for workers laid off during the pandemic and helped stabilize the economy.

Colorado is among the states retaining enhanced benefits until September, when they are due to expire nationwide.

Guard and Grace, a steakhouse in downtown Denver, is experiencing a resurgence in business as diners venture out and tourism picks up, said General Manager Jeff Stoltman. But the restaurant is struggling to find workers to meet that demand, which he attributes in part to enhanced benefits, and as a result is keeping its dining room closed for lunch service.

“It’s a slower process than it ever has been to find workers,” said Mr. Stoltman. “People apply but don’t show up for interviews. Maybe they’re finding employment elsewhere, but it could also be that they’re meeting job-search requirements but don’t really want a job.”

Most states require unemployment recipients to demonstrate that they are actively searching for a job.

The pace of the economy’s recovery in the near term could hinge on how the Delta variant of the coronavirus affects the pandemic. Many economists view the variant as a risk, but not a large enough one to change forecasts for robust growth in the second half of the year.

Belinda Román, assistant professor of economics at St. Mary’s University in San Antonio, said last week’s increase in initial claims appears to be tied to manufacturing and supply-chain disruptions. But she sees the possibility that a worsening pandemic could keep potential workers on the sidelines.

“Some people might just decide to stay home with their kids because what happens is that if schools close again, mandates become more severe, or if businesses don’t reopen, people start to plan ahead,” she said.