Claims continue to fall, but high levels spark fears about long-term damage

New claims for unemployment fell last week, the government reported Thursday, but the elevated levels are fueling worries about prolonged damage inflicted on the labor market by the pandemic and the slow rollout of vaccines.

A total of 873,966 workers filed first-time claims for state unemployment benefits for the week that ended Jan. 23, the Labor Department said, and an additional 426,856 new claims were filed under a federal pandemic jobless program that covers freelancers, parttime workers and others normally ineligible for state jobless benefits. Neither figure is seasonally adjusted. On a seasonally adjusted basis, new state claims totaled 847,000.

The figures for newly filed claims are below the staggering levels of last spring, when the coronavirus started its march across the map, but they continue to dwarf previous records.

The impact of the virus on the service sector, particularly leisure and hospitality, is extracting the heaviest toll.

“We need the service sector to come back for the economy more broadly to come back,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics.

Although The Conference Board reported Tuesday that consumer confidence edged up in January, views of the labor market’s current health dropped. The percentage of respondents saying jobs are “plentiful” declined, and the share saying that “jobs are hard to get” rose.

“Everything goes back to the health crisis,” Farooqi said, “Once you get most of the population vaccinated, that’s a completely different picture.”

The number of people applying for extended state benefits — which kick in only after jobless workers have exhausted their regular allotment of unemployment insurance — also rose above 1.5 million for the week that ended Jan. 9, up about 100,000 from the week before.

“The longer people are unemployed, the harder it is to get back into the workforce,” said Kathy Bostjancic, chief U.S. financial economist at Oxford Economics.

“The longer this continues, the more there is a heightened risk of mediumterm scarring.”