Service industry still distressed even as jobless claims dip

More than nine months after the coronavirus started spreading widely, the U.S. economy remains stuck in the state that characterized it for much of 2020.

While many big businesses are prospering, the service economy is constrained by restrictions and a wariness to spend in many parts of the country.

Initial claims for unemployment benefits dropped modestly last week, the Labor Department reported Thursday, although they remained very high by historical standards at more than 800,000.

Hiring has slowed along with the rest of the economy, and some economists expect to see barely any growth in payrolls when data for December comes out next week.

The situation is most severe for lower-skilled workers. While the unemployment rate for college graduates stood at 4.2 percent in November, the rate was 7.7 percent for workers with just a high school diploma. The jobless rate for all Americans was 6.7 percent.

The Christmas holiday likely affected filings because of the shortened workweek, a phenomenon that also occurred during Thanksgiving week. “They bounce up and down a lot during the holidays,” said Gus Faucher, chief economist at PNC Financial Services Group in Pittsburgh.

There were 841,000 new claims for state benefits, compared with 873,000 the previous week. Another 308,000 people filed for Pandemic Unemployment Assistance, a federally funded program for part-time workers, the self-employed and others ordinarily ineligible for jobless benefits.

“It’s still a very high number,” said Diane Swonk, chief economist at Grant Thornton, an accounting firm in Chicago. “The signals aren’t exactly favorable.”

The weakness underscores the need for the pandemic relief bill that President Donald Trump signed into law Sunday, she added. But uncertainty over the package’s fate last week, plus the holiday, may have temporarily depressed claims. It will take months for the new legislation’s full impact to be felt, and most economists expect the rate of layoffs to remain high.

Still, economists say the $900 billion aid package could mean the difference between some economic expansion in the first quarter and no growth at all.

To many people, the economy will not noticeably improve for several months at least. Swonk expects hiring to have been unchanged or decline in December from November.

“The overall labor market is losing momentum at a critical juncture as cases soar,” she said.

On a seasonally adjusted basis, the number of new state claims was 787,000, a decrease from 806,000 in the previous week.

Stricter state and local restrictions on restaurants and other businesses will weigh heavily on the job market in the weeks ahead, said Scott Anderson, chief economist at Bank of the West in San Francisco.

Anderson expects that the monthly jobs report will show that the unemployment rate rose to 6.9 percent in December, from 6.7 percent in November. The unemployment rate has fallen sharply since peaking at 14.7 percent in April, but hiring has slowed as the economy has faltered in recent months.

The economy may have gained about only 20,000 jobs in December, said Rubeela Farooqi, chief U.S. economist at High Frequency Economics. That would amount to a “huge deceleration from last month,” she added, when payrolls jumped by 245,000.

What’s more, the pace of layoffs has been persistently high, as sectors like dining, travel and entertainment struggle because the pandemic is keeping many people at home even in states and cities that have not placed many restrictions on businesses.