People line up outside a Kentucky Career Center in Frankfort, Ky., on June 18, 2020.Bryan Woolston/Reuters
The number of Americans filing first-time claims for unemployment benefits unexpectedly fell last week, though remaining elevated as more businesses face restrictions and consumers hunker down amid an explosion of new COVID-19 cases.
The raging pandemic and delays by Congress to approve another rescue package are sapping energy from the economy as the curtain closes on a brutal year. Other data on Wednesday showed consumer spending dropping in November for the first time since the recovery from the coronavirus recession started in May. Spending was weighed down by a plunge in income.
The reports followed on the heels of data on Tuesday showing consumer confidence slumping to a four-month low in December. They bolstered analysts’ predictions of a sharp slowdown in growth in the fourth quarter after fiscal stimulus led to a historic surge in gross domestic product in the third quarter.
Initial claims for state unemployment benefits fell 89,000 to a seasonally adjusted 803,000 for the week ended Dec. 19, the Labour Department said. Economists polled by Reuters had forecast 885,000 applications in the latest week.
Including a government-funded program for the self-employed, gig workers and others who do not qualify for the regular state unemployment programs, 1.3 million people filed claims last week. There were at least 20.3 million people collecting unemployment benefits in early December.
Though jobless claims have dropped from a record 6.867 million in March, they remain above their 665,000 peak during the 2007-09 Great Recession. Congress on Monday approved additional fiscal stimulus worth almost US$900-billion, but economists said this was too little and too late.
Though the new rescue package includes direct payments to most Americans, economists expect a chunk of the stimulus cheques will be saved. Health experts also warn it could take a while for herd immunity to the virus.
The United States is being battered by a new wave of coronavirus cases, with more than 18 million people infected and nearly 320,000 dead, according to a Reuters tally of official data. State and local governments have reimposed restrictions on businesses, undercutting consumer spending and unleashing a fresh round of layoffs. More than US$3-trillion in government pandemic relief led to historic growth in the third quarter.
U.S. stocks were trading higher. The dollar slipped against a basket of currencies. U.S. Treasury prices fell.
INCOME DECLINES AGAIN
A second report from the Commerce Department on Wednesday showed consumer spending, which accounts for more than two-thirds of U.S. economic activity, declined 0.4 per cent in November after increasing 0.3 per cent in October.
Consumers cut back on purchases of goods such as new motor vehicles, clothing and footwear. That offset increases in spending on food and beverages from supermarkets and liquor stores. Consumers also slashed spending at restaurants and bars and on accommodation and household utilities such as electricity and gas.
Personal income decreased 1.1 per cent in November, pulled down by the expiration of a government loan program for businesses hit by COVID-19. There were also decreases in coronavirus-related government payments to farmers and ranchers, as well as unemployment subsidies. Income fell 0.6 per cent in October.
With incomes dwindling, Americans are dipping into savings. The saving rate fell to a still-high 12.9 per cent from 13.6 per cent in October. It peaked at record 33.6 per cent in April.
Inflation remained muted in November. The personal consumption expenditures (PCE) price index excluding the volatile food and energy components was unchanged for a second straight month. In the 12 months through November, the so-called core PCE price index increased 1.4 per cent, matching October’s gain.
The core PCE index is the preferred inflation measure for the Fed’s 2 per cent target, a flexible average.
While a third report from the Commerce Department showed business spending pushing ahead in November, the pace has slowed. Still, strong business investment could blunt some of the impact of slowing consumer spending and keep the economy on a moderate growth path this quarter.
Orders for non-defence capital goods excluding aircraft, a closely watched proxy for business spending plans, rose 0.4 per cent last month. These so-called core capital goods orders jumped 1.6 per cent in October. Shipments of core capital goods increased 0.4 per cent last month. Core capital goods shipments are used to calculate equipment spending in the government’s gross domestic product measurement. They surged 2.6 per cent in October.
Growth estimates for the fourth quarter are mostly below a 5-per-cent annualized rate. Economists expect modest growth or even a contraction in the first quarter of 2021. The economy grew at a record 33.4 per cent rate in the third quarter after contracting at a 31.4-per-cent pace in the April-June period, the deepest since the government started keeping records in 1947.
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