U.S. initial jobless claims continue to decline but remain elevated

*U.S. initial jobless claims declined to 2.4m during the week ending May 16 from 2.7m in the prior week, bringing its four-week total to 12.2m and indicating another significant rise in the unemployment rate in May from 14.7% in April (Chart 1). Initial jobless claims have totaled 38.6m since mid-March, suggesting that roughly 25% of the 152m persons employed in February have lost jobs because of this crisis.

*Although claims are still elevated, they have now declined for seven consecutive weeks. If they continue to decline near the recent trend (-369k on average over the last two weeks), they could return close to pre-pandemic levels around the end of June/early July. Unfortunately, this suggests the unemployment rate will increase again in June.

*Continuing claims for unemployment insurance (reported with a two-week lag) increased to 25.1m during the week ending May 9 from 22.5m in the prior week (Chart 2). Even as states gradually allow the resumption of business activities, layoffs continue to offset hiring/rehiring.

States reporting the highest number of initial jobless claims (in non-seasonally adjusted terms) for the week ending May 16 include California (246k), New York (227k) and Florida (224k). Only twelve states reported an increase in initial claims last week. Washington had the largest increase in claims (+34k to 145k) and Georgia had the largest decrease (-66k to 177k).

If the Paycheck Protection Program (PPP) works as intended, continuing jobless claims should recede in coming weeks as portions of the program’s loans used by businesses for payrolls will be forgiven if they rehire workers by June 30, 2020. Business rehiring decisions depend critically on product demand and cash flows.

The estimate of unemployment in the Bureau of Labor Statistics (BLS) May Employment Report (scheduled for release on June 5) will reflect labor market conditions for the week of May 10-16. The 12.2m initial jobless claims between April 19 and May 16 points to a material rise in the unemployment rate between the May and April BLS survey weeks (April 12-18).

Chart 1:

Chart 2:

Roiana Reid, roiana.reid@berenberg-us.com

Member FINRA & SIPC
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