Applications for state unemployment benefits surged last week by the most since late March, pointing to persistent labor-market pain as coronavirus infections continue to soar and potentially adding to momentum for a larger federal stimulus plan.

Initial jobless claims in regular state programs rose by 181,000 to 965,000 in the week that ended Jan. 9, according to Labor Department data Thursday that showed a broad number of states with large increases. On an unadjusted basis, the figure jumped to 1.15 million.

The scope of the increase caught many economists by surprise. Most of the several dozen surveyed by Bloomberg projected the claims number would be little changed and no one had predicted a jump of nearly 1 million.

The median forecast in a Bloomberg survey of economists called for 789,000 initial claims. The S&P 500 advanced in early trading along with the yield on the 10-year Treasury on prospects for more COVID-19 relief.

Advertisement

Continuing claims in state programs — an approximation of the number of people receiving ongoing benefits — climbed by 199,000 to 5.27 million in the week that ended Jan. 2.

“The restrictions imposed to combat the third COVID wave clearly have done great damage, but it’s not obvious that the incremental hit is still increasing,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a note. “Claims will drift sideways, more or less, over the next two to three months, before restrictions on the services sector can be gradually eased as vaccination brings herd immunity into sight.”

Stimulus Outlook

Jobless claims have exceeded 750,000 each week since virus cases started surging again late last year, underscoring the effect of infection fears and business restrictions on employment.

Advertisement

Vaccine distribution should help restore economic activity in the coming months, but the first quarter could continue to bring labor market weakness until inoculations reach a critical mass.

The recently approved $900-billion pandemic aid package should provide some relief for workers and businesses in the current quarter.

Enhanced unemployment benefits passed in the December bill, combined with a $300 weekly top-up for regular state benefits, may have contributed to the latest increase in claims, said Gregory Daco, chief U.S. economist at Oxford Economics.

“From a signaling perspective, once you see that maybe you think, ‘It’s worth me filing because I can get an additional $X per week.’ There’s a positive effect there in terms of signaling, but I would not say it’s a revelation of additional laziness,” Daco said.

Advertisement

Other Details

  • Among states, Illinois and Florida reported initial claims exceeding 50,000 last week, while California and Kansas topped 20,000 on an unadjusted basis.
  • Pandemic Unemployment Assistance, a program for self-employed and gig workers, saw 284,470 initial claims last week on an unadjusted basis, an increase of more than 123,000 from the prior week.
  • In the week that ended Dec. 26, there were 4.17 million continuing claims for Pandemic Emergency Unemployment Compensation, which provides extended jobless benefits for those who have exhausted their regular state benefits.