By Gwynn Guilford and Hannah Lang
The number of workers filing for jobless benefits posted its biggest weekly gain since the pandemic hit last March and the head of the Federal Reserve warned the job market had a long way to go before it is strong again.
Applications for unemployment claims, a proxy for layoffs, rose by 181,000 to 965,000 last week, the Labor Department said Thursday, reflecting rising layoffs amid a winter surge in coronavirus cases.
The total for the week ended Jan. 9 also was the highest in nearly five months and put claims well above the roughly 800,000 a week they had averaged in recent months.
"We are a long way from maximum employment," Fed Chairman Jerome Powell said in a webcast with Princeton University, his undergraduate alma mater, an indication that the central bank's easy-money policies will remain in place for the foreseeable future.
The U.S. labor-market recovery stalled last month with the December jobs report showing the U.S. lost 140,000 payroll positions. The economic recovery's slowdown has included weakness in household spending, though economists expect the economy to rebound later this year as a Covid-19 vaccine is distributed through the population.
But the increase in unemployment claims is another sign that the economic recovery is, at least for now, sputtering, as Covid-19 infections hit record levels nationwide.
"What we're seeing in unemployment claims is a reminder that we're likely to lose more jobs before we get to the end of this crisis," said Diane Swonk, chief economist at Grant Thornton.
Delayed filings by workers over the Christmas and New Year holidays and $300-a-week in extra jobless benefits included in a coronavirus-relief package signed into law last month could have contributed to the climb in claims, she added.
Still, Ms. Swonk said the claims increase and drop in December employment signal broader labor-market deterioration.
Employers cut 140,000 jobs in December, marking the first decline since the pandemic hit last spring. The leisure and hospitality industry bore the brunt of the decline, shedding 498,000 jobs as a surge in coronavirus infections forced many restaurants and bars to close or scale back operations.
The consumer-spending revival that had buoyed the economy through much of 2020 is showing signs of retreat as well, as household spending declined for the first time in seven months in November, with household income slipping as well.
Another sign comes from the increase in the number of people collecting unemployment benefits through regular state programs. So-called continuing claims rose to nearly 5.3 million for the week ended Jan. 2, from 5.1 million a week earlier, according to the Labor Department. That marked the first weekly increase since November. The number had declined throughout the summer and into the fall, as laid-off workers were recalled to their jobs or found employment elsewhere.
Many individuals, though, are experiencing spells of unemployment so long that they have exhausted their benefits altogether.
Hunter Keegan, 27 years old, of Fairfax County, Va., said he lost his job as a corporate recruiter for a health-care company last April. He said he immediately began applying for work in the greater Washington, D.C., area as well as in other parts of the country where the labor market seems to be faring better. Some of these led to interviews -- and he even received a few offers, he said. All of those fell through, though. And in October, Mr. Keegan received his last unemployment check.
Mr. Keegan said he no longer has any idea of how long it might take him to find a job.
"I've been out of work for about eight months, and I need to get back into the workforce full-time," Mr. Keegan said, adding that he is paying for treatment of a chronic medical condition using installment plans.
Last week's increase in claims was broad-based, with new applications rising in 36 states and the District of Columbia. Florida and Illinois both saw unadjusted initial claims rise by around 51,000, while Kansas reported nearly 23,000 more than the prior week.
Other recent data suggest an economic slowdown is under way. The recovery in the number of available jobs posted online reversed course toward the end of December, according to job-search site Indeed's measure of job-posting trends. Small-business optimism fell sharply in December. New- and existing-home sales fell in November from the previous month.
Seasonal quirks and the passage last month of a $900 billion Covid-19 relief bill could have muddied the claims picture somewhat.
The number of initial claims and those receiving state benefits typically pick up in the first week after the two-week period that spans the Christmas and New Year holidays, said Elizabeth Pancotti, policy adviser at Employ America, an economic policy advocacy group.
The relief package signed by President Trump on Dec. 27 could also have distorted the trend of the past few weeks, Ms. Pancotti said. States' efforts to implement the new extension may have created a backlog in the final week of 2020.
At the same time, the bill added the $300-a-week supplement for those receiving unemployment benefits through March 14 and extended two federal pandemic programs that otherwise would have paid out their final benefits in December. News of the relief package could also have contributed to an uptick in initial claims by encouraging additional workers to apply or previously eligible workers who exhausted their benefits to reapply.
Many economists anticipate a labor-market rebound, as vaccines are distributed more widely, spurring spending and hiring. Beth Ann Bovino, U.S. chief economist for S&P Global Ratings, expects that to happen in the second half of 2021 but warns that the labor market could well worsen in coming months. "It all depends on containing the virus, and that looks to me like an increasing struggle," she said.
--Jon Hilsenrath contributed to this article.
Write to Gwynn Guilford at gwynn.guilford@wsj.com
(END) Dow Jones Newswires
01-14-21 1521ET
