The labor market remains in distress as the pandemic limits consumer activity across the country.
Initial claims for unemployment benefits dropped modestly last week, the Labor Department reported Thursday, though they remained very high by historical standards.
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 President Trump signed into law on 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.
The latest data do not augur well for the employment picture in December. The Labor Department will release its numbers on hiring and unemployment for the month next week, and Ms. Swonk expects hiring to be unchanged or decline 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.
Mr. 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 only have gained about 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. By contrast, many white-collar workers who have been able to work remotely have emerged from the economic turbulence relatively unscathed.
The introduction of vaccines is a bright spot, as are positive economic signs, like surging stock prices and a booming housing market. But it will be months before enough Americans can be inoculated to allow people to go to restaurants, events and movie theaters without fear of being infected.
“The trend is not good with the additional closures implemented around the country,” said Carl Tannenbaum, chief economist at Northern Trust in Chicago.