U.S. initial jobless claims declined slightly last week

*U.S. initial jobless claims declined to 2.98m during the week ending May 9 from 3.18m in the prior week, a smaller-than-expected decline (consensus: 2.5m), bringing its total over the last two months to 36.5m (Chart 1). Initial claims are now 57% below the end of March peak, but they remain historically high (4.3 times the pre-COVID peak of 695k), indicating a significant increase in the unemployment rate again in May, following the 10.3pp jump to 14.7% in April.

*The 195k decline in initial claims last week is the smallest decline since the start of April, which is surprising given that more states are gradually reopening their economies. If initial claims continue to fall at such a slow pace, the unemployment rate will continue to rise beyond May.

*Continuing claims for unemployment insurance (reported with a two-week lag) increased to 22.8m during the week ending May 2 from 22.4m in the prior week, a smaller-than-expected increase (consensus: 25.1m). See Chart 2. This suggests that a greater share of persons are returning to work and no longer need unemployment insurance or that states are taking a long time to process unemployment benefits. Continuing claims will be useful in signaling the eventual decline in the unemployment rate.

States with the largest number of claims during the week ending May 9 include Connecticut (299k), Georgia (241k), and Florida (222k). Only seven states reported an increase in initial claims. Connecticut had the largest increase in claims (+263k to 299k) and Texas had the largest decline (-102k to 142k).

The 10m total initial jobless claims between April 19 and May 9 points to continued significant increases in unemployment that will be reflected in the May Employment Report (scheduled for release on June 5). These initial claims numbers are still extremely elevated. In February, the total number of unemployed persons was 5.8m.

The sluggish decline in initial claims supports our expectation for a slow labor market recovery, dependent on health care developments. We expect the unemployment rate to be more than double its pre-crisis level at the end of 2021. A sluggish labor market recovery will constrain the rebound in consumption, especially of nonessential goods and services.

Chart 1:

Chart 2:

Roiana Reid, [email protected]

Member FINRA & SIPC
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