Economic Report: U.S. jobless claims fall to four-month low of 1.31 million in early July, but layoffs still high

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The numbers: The number of initial jobless claims fell by almost 100,000 to 1.31 million in early July, but the pace of layoffs is still quite high more than three months after the coronavirus pandemic began and appears to be bogging down a frail economy recovery.

Initial jobless claims, a rough gauge of layoffs, dropped to 1.31 million in the seven days ended July 4 from a revised 1.41 million in the prior week, the Labor Department said Thursday. The figures are seasonally adjusted.

Economists polled by MarketWatch had forecast 1.40 million new claims. These figures reflect applications filed the normal way through state unemployment offices.

An additional 1.04 million people applied for benefits last week through a temporary federal-relief program, pushing the combined total for the week to 2.35 million.

The number of people receiving traditional jobless benefits through the states, meanwhile, declined to 18 million in the week ended June 27 from 18.8 million. These are known as continuing claims.

Yet if all eight state and federal assistance programs are included, continuing claims rose to an unadjusted 32.9 million in the seven days ended June 20, the most recent data available. That marks a small increase from 31.5 million in the prior week.

MarketWatch is a reporting select jobless claims data using actual, or unadjusted, figures to give a clearer picture of unemployment. The seasonally adjusted estimates typically expected by Wall Street have inflated jobless claims during the pandemic and become less accurate.

What happened: New jobless claims were the highest in the states of California, Texas, New York, Florida and Georgia.

California and New York are among a group of states that have been hit hardest by the coronavirus and that have struggled to process a deluge of new jobless claims. New reports from California suggest that up to 2 million claims are still outstanding.

More than 50 million new claims have been filed since mid-March. Before the crisis the states processed fewer than 225,000 claims a week.

See: MarketWatch Economic Calendar

Big picture: Pentup demand and the return of millions of workers to their jobs in May and early June gave a big jolt of adrenaline to the economy, but the latest outbreak of the coronavirus may have robbed a fragile recovery of its momentum. Many companies might have to close for good and some are deciding they won’t bring back all their workers because the demand simply isn’t there.

Economists say Washington should extend emergency unemployment benefits that expire at the end of the July or the U.S. could suffer another setback.

Yet some also say the extra $600 in temporary federal benefits probably needs to be reduced because many workers are getting more money from unemployment than they would have earned in their old jobs. That might be discouraging employees from returning to their jobs and leaving jobless claims — and the unemployment rate — higher than it otherwise would be.

Market reaction: The Dow Jones Industrial Average DJIA, +0.68% and S&P 500 SPX, were set to open mixed in Thursday trades.

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