MACRO: US jobless claims highest since May

• Weekly jobless claims at 2-Month High
• Continuing claims hit new pandemic low

Weekly jobless claims unexpectedly moved higher last week despite hopes that the US labor market is poised for a strong recovery heading into the fall. Initial claims increased 51k to a seasonally adjusted 419k for the week ended July 17, well above analysts' expectations of 350k and more than the upwardly revised 368k from the previous period. Continuing Jobless Claims fell to 3.236 million from 3.265 million in the previous week. It is a new pandemic low although figures came above market forecasts of 3.1 million. Continuing claims, which run a week behind the headline number, have been falling since late June, and next week's report will provide more hints on how hiring fared in July.

US jobless claims reached the highest level since mid-May. Initial claims have declined from a record 6.149 million in early April 2020, but they remain above the 200k-250k range that is seen as consistent with healthy labor market conditions. Source: Bloomberg

The 4-week moving average which removes week-to-week volatility also increased by 750 to 385,250. In fact, employers are struggling to fill open positions, citing ongoing labor shortages due to enhanced benefits, concerns about contracting COVID-19 and finding childcare. Many analysts expect labor shortages to ease by the fall, with schools set to reopen to alleviate child care concerns and unemployment benefits set to expire in all states in September, the Labor Department reported Thursday. 

Continuing claims have decreased in some states that have terminated federal benefits (red states) as well as in those that remain on the programs (blue states). However, the unemployment rate is clearly lower in states which are run by Republicans. 

Source: Bloomberg via Zerohedge

This is also confirmed by the Goldman research,  which shows that the number of claims under regular state programs varied further between states that continue to pay benefits and those that no longer support the unemployed. In other words, while the number of unemployed claims - both initial and continuing - has fallen sharply in Republican-controlled states and initiated labor market normalization, in Democrat-controlled states their number remains roughly at the same level. 

Source: Department of Labour, Goldman Sachs Global Investment Research.

The above data casts doubt on the effectiveness of government programs aimed at improving the situation on the labor market and brings to mind the words of the American economist Milton Friedman, who once stated “If you pay people not to work and tax them when they do, don’t be surprised if you get unemployment.”