Slowing U.S. labor market, rising COVID-19 cases cast cloud over economic recovery

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In this news, we discuss the Slowing U.S. labor market, rising COVID-19 cases cast cloud over economic recovery.

WASHINGTON (Reuters) – The number of Americans filing for the first time for unemployment benefits rose again last week, suggesting an explosion in new COVID-19 infections and trade restrictions were increasing layoffs and undermined the recovery of the labor market.

Still, the economy got off to a good start in the fourth quarter, with consumer spending and business investment in equipment exceeding analysts’ expectations in October. Companies also reported a strong rebound in their profits in the third quarter.

But this is probably insufficient to dispel the heavy cloud in the economy. Personal income fell last month and could fall further with at least 12 million Americans due to the loss of government-funded unemployment benefits a day after Christmas.

The benefits, which are part of a more than $ 3 trillion government coronavirus relief program that has largely expired, contributed to record economic growth in the third quarter. Another package is not expected until after President-elect Joe Biden is sworn in on January 20. President Donald Trump is heavily focused on challenging his electoral defeat to Biden.

“There is a two-tiered recovery from the pandemic recession where the top of society continues to spend normally while the bottom half of the country lines up at food banks with few and far between job opportunities,” he said. said Chris Rupkey, chief economist at MUFG in New York.

Initial claims for state unemployment benefits rose from 30,000 to 778,000 seasonally adjusted for the week ended Nov. 21, the Labor Department said. It was the second consecutive weekly increase in claims and exceeded economists’ expectations for 730,000 applicants in a Reuters poll.

The weekly claims report, the most recent data on the health of the economy, was released a day earlier due to Thursday’s Thanksgiving holiday.

Unadjusted claims jumped from 78,372 to 827,710 last week. Economists prefer the unadjusted number because of the earlier difficulties in adjusting loss data for seasonal fluctuations due to the economic shock caused by the pandemic.

Including a government-funded program for the self-employed, small workers and others who do not qualify for regular state unemployment programs, 1.14 million people filed claims last week. There were at least 20.5 million people receiving unemployment benefits in early November.

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Consumer spending in the United States is increasing; income drops in October

The United States has come under fire with a new wave of coronavirus infections, with daily cases exceeding 100,000 since early November. More than 12 million people have been infected in the country, according to a Reuters tally of official data.

Respiratory disease has killed more than 259,000 Americans and hospitalizations are skyrocketing, prompting state and local governments to reimpose a host of restrictions on social and economic life in recent weeks, which could keep claims above their mark. peak of 665,000 recorded during the Great Recession of 2007-09. .

Stocks on Wall Street were mostly lower. The dollar fell against a basket of currencies. US Treasury prices have gone up.

EXHAUST ADVANTAGES

Although the Compensation Claims Report showed that the number of people receiving benefits after a first week of help declined from 299,000 to 6.071 million in the week ending November 14, that’s because many have exhausted their eligibility, which is limited to six months in most states.

A record 4.509 million workers filed for extended unemployment benefits in the week ending Nov. 7, up 132,437 from the previous week. These benefits, along with those for on-demand and self-employed workers, will end on December 26.

This and the ebb in consumer confidence amid the raging pandemic cast doubts on the sustainability of the sustained pace of spending. In a second report, the Commerce Department said consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.5% last month after rising 1.2% in September. . But personal income fell 0.7%, offsetting a 0.7% gain in September. Economists had forecast that consumer spending would rise 0.4%.

“Without recent virus-related developments, it looks like GDP would be on track for a fairly robust fourth quarter,” said Daniel Silver, economist at JPMorgan in New York. “But given the recent surge in new cases of COVID-19, we believe the data will soften noticeably in November and December.”

The anticipated slowdown in consumer spending should be tempered somewhat by the strength of business investment against a backdrop of robust earnings, ensuring the economy continues to grow in the fourth quarter, albeit at a moderate pace.

Orders for non-defense capital goods excluding aircraft, a closely watched indicator of business spending plans, rose 0.7% in October, the Commerce Department said in a third report .

A fourth report from the department showed that after-tax profits without inventory valuation or capital consumption adjustment, which matches S&P 500 earnings, rebounded at an annualized rate of 36.6% in the third quarter after two declines. consecutive quarterly.

The ministry also confirmed that the economy grew at a historic rate of 33.1% in the July-September quarter.

Growth estimates for the fourth quarter are lower than an annualized rate of 5%. The slowdown in growth was highlighted by a fifth Commerce Department report showing that the merchandise trade deficit increased 1.2 percent to $ 80.3 billion in October.

Despite encouraging vaccine developments, skyrocketing COVID-19 infections and expectations of a smaller stimulus package have prompted economists to sharply lower their GDP growth forecast for the first quarter of 2021.

Reporting by Lucia Mutikani; Edited by Chizu Nomiyama and Andrea Ricci

Original © Thomson Reuters

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