Unemployment Claims Are Lowest Since Pandemic Began

After a job drought that resulted in the highest unemployment levels since the Great Depression, the labor market is shaking off the pandemic’s effects, setting the stage for an economic revival in the coming months.

The Labor Department reported Thursday that new claims for jobless benefits fell to their lowest weekly level in the last year, a sign that the faster rollout of vaccines and the passage of a $1.9 trillion relief package are having an effect.

Initial claims for state benefits totaled 657,000, a decrease of 100,000 from the previous week.

With more states loosening restrictions on indoor dining areas, movie theaters, gyms and other gathering places, workers are being recalled to their jobs and layoffs are easing. Service employees, who were among the hardest hit in the pandemic’s economic blow, have been among the first to feel the benefits of the economy’s quickening pace.

“This is definitely a positive signal and a move in the right direction,” said Rubeela Farooqi, chief U.S. economist for High Frequency Economics.

As the job market shows signs of life, economists are lifting their forecasts for U.S. economic growth. Bank of America said Thursday that it expected output to increase by 7 percent this year and by 5.5 percent next year, each half a percentage point above its previous estimate.

What’s more, the bank expects the economy to gain an average of 950,000 jobs a month in the second quarter, lowering the jobless rate to 4.7 percent by the summer. The unemployment rate soared to 14.8 percent in April 2020 as the lockdowns peaked before falling to 6.2 percent last month.

“Stronger economic growth is largely a function of the stimulus, with a meaningful increase in consumer spending,” said Michelle Meyer, chief U.S. economist for Bank of America. “All this should lead to an impressive amount of job creation in the coming months.”

“Obviously, the decline in jobless claims is encouraging,” she added, “and other forward-looking indicators like manufacturing surveys and credit card spending are supporting the expectations for stronger growth.”

That optimism was echoed in Washington.

“We are starting to get new signs of hope in our economy,” President Biden said at a news conference, citing the latest unemployment claims figures. “We still have a lot of work to do. I can say to the American people help is here and hope is on the way.”

Businesses are banking on customers’ increased spending, and planning accordingly. United Airlines said Thursday that it would add more than two dozen new flights beginning Memorial Day weekend, mostly between cities in the Midwest and tourist destinations like Pensacola, Fla., and Hilton Head Island, S.C.

“Over the past 12 months, this is the first time we are really feeling more bullish,” said Ankit Gupta, United’s vice president for domestic network planning and scheduling.

Delta Air Lines issued a similar update last week, announcing more than 20 nonstop summer flights to mountain, beach and vacation destinations.

The rebound in the airline sector underscores how some of the worst-hit sectors — entertainment, dining and hospitality, travel and lodging — are poised to rebound. Indeed, the $1,400 payments that most individuals received as part of the relief legislation are already finding their way to lunch counters and cash registers.

The progress has been long awaited for many hourly employees, blue-collar workers and other lower-paid members of the American work force. They have borne the brunt of the coronavirus pandemic and the resulting recession, and are desperate for signs of relief.

White-collar workers who are able to work from home have fared better, and their relative good fortune has helped fuel a boom in stocks and the housing market.

As the job market heals, there is little reason to think it will elicit a forceful response from the Federal Reserve, America’s central bank.

The Fed changed its policy framework last year to focus on “shortfalls” from full employment, rather than “deviations.” In practice, that means it does not plan to raise interest rates just because the labor market heats up — for instance, if unemployment drops below historically normal levels — so long as inflation is under control.

“The more vibrant the labor market is, the more likely it is to be an inclusive, vibrant labor market,” Charles Evans, president of the Federal Reserve Bank of Chicago, said on a call with reporters Thursday. “We’re not going to prematurely cut off a vibrant labor market.”

There have been false starts before, namely a burst of growth that faded as the virus worsened in the fall, but last week’s drop in claims was still notable for its size. In February, the economy remained more than nine million jobs short of where it was before the pandemic.

Unemployment claims have been at historically high levels for the past year, partly because some workers have been laid off more than once. Still, the bottom line is that the data recently has been favorable, said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

“Weekly numbers have been choppy but we’ve been on a downward trend since mid-January,” he said. “As more business owners see a reopening will come, they are more willing to hang on to staff.”

Between the state and federal programs, the number of new jobless claims last week was just under 900,000 after being stuck for months above one million a week.

There were 242,000 new claims for Pandemic Unemployment Assistance, a federal program covering freelancers, part-timers and others who do not routinely qualify for state benefits, a decrease of 43,000.

Diane Swonk, chief economist at the accounting firm Grant Thornton, said she hoped for consistent employment gains, but her optimism was tempered by concern about the longer-term displacement of workers by the pandemic.

“The numbers are encouraging, but no one is jumping the gun and hiring up for what looks to be a boom this spring and summer,” she said. “There is a reluctance to get ahead of activity.”

“We’ve passed the point where you can just flip a switch and the lights come back on,” she added. “We need to see a sustained increase in hiring, which I think we will see, but the concern is that it won’t be so robust. It takes longer to ramp up than it does to shut down.”

Raphael Bostic, the president of the Federal Reserve Bank of Atlanta, took a cautious stand in a call with reporters Thursday.

“We’re still so far behind in terms of a jobs deficit — even if you went 400,000 a month, that’s a lot of months before you get to nine million,” he said. “We still have a ways to go.”

Jeanna Smialek and Niraj Chokshi contributed reporting.