January 27, 2022

U.S. unemployment claims jump to nine-week high of 419,000 as automakers temporarily shut plants

By Jeffrey Bartash at market watch.com

The number of people who applied for unemployment benefits in mid-July jumped to the highest level in two months. Yet the increase was concentrated in just a few states heavily engaged in automaking and probably doesn’t reflect any fresh fault-lines emerging in the U.S. economy.

Initial jobless claims surged by 51,000 to 419,000 in the seven days ended July 17, the government said Thursday.

The biggest increase took place in Michigan, where autoworkers are eligible for benefits when manufacturing plants are briefly shut down each summer to retool for the latest models. Kentucky and Texas, other big auto-manufacturing states, also reported large increases in new claims.

The surge in applications was well above Wall Street expectations. Economists polled by The Wall Street Journal had forecast 348,000 new claims.

An additional 110,257 applications for benefits were filed through a temporary federal relief program set up during the pandemic.The fresh increase in new claims aside, the number of people applying for state or federal benefits has been slouching this year toward pre-pandemic levels. New claims ran in the low 200,000s before the viral outbreak.

The labor market is far from fully healed 16 months after the start of the pandemic. Millions of people who were employed before the viral outbreak remain out of work and many probably won’t return until the fall.

Just over half the U.S. states have cut off extra federal benefits in an effort to prod people to return to the workforce. There’s some evidence the approach has moved the needle, but not enough to alter the bigger picture.

As of early July, about 12.57 million people were receiving unemployment compensation. That’s the lowest amount since the month before the pandemic, when fewer than 2 million people were collecting unemployment benefits.

New jobless claims jumped by 13,000 in Michigan, 10,000 in Texas and 9,000 in Kentucky. All three are among the biggest auto-manufacturing states in the country.

Each year automakers typically shut down their assembly lines for up to two weeks to reconfigure them to make the latest models of new cars.

What’s more, an ongoing global shortage of computer chip has forced them to occasional halt production. General Motors GM, -2.00% just announced it was halting production of pickup trucks because it doesn’t have enough chips.

The government always has difficulty adjusting new claims for seasonal swings in July because of the auto-plant shutdowns and the July 4 holiday, a problem compounded by the pandemic.

Yet new claims fell in 31 other states in a sign that fewer people are being laid off. Most companies are trying to add new workers, not get rid of them, with the economic recovery gathering steam.

The number of people already collecting state jobless benefits, meanwhile, fell by 29,000 to a seasonally adjusted 3.24 million. These so-called continuing claims are consistently falling to new pandemic lows.

Some 4.1 million people who have exhausted state compensation were also getting temporary federal benefits as of July 3, the latest data available. The number has tumbled from almost 6 million in the middle of June, likely reflecting the cutoff of federal benefits.

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