About 20.6m are receiving unemployment benefits of some kind, nine months after the pandemic began to hit the US © Bloomberg

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Another 885,000 Americans filed for first-time unemployment benefits last week, the highest level in three months, as fresh restrictions to combat the resurgence in coronavirus cases continue to strain the job market.

Weekly jobless claims increased by 23,000, from 862,000 last week. Economists had expected claims to moderate to 800,000. That came alongside a rise of 40,000 in claims for federal pandemic unemployment assistance (PUA) to 455,037, the US labour department said on Thursday.

“To put these numbers in perspective, before the pandemic surge, the highest single weekly tally ever was 695,000 in 1982,” said Joshua Shapiro, economist at consulting firm Maria Fiorini Ramirez. The fact that claims “are still running at such a high level is, in absolute terms, bad news”, he added.

There were 5.51m Americans actively collecting state jobless aid as of December 5, a decrease of 273,000 from a week before. Economists cautioned this could be driven by the exhaustion of benefits by some unemployed workers, rather than finding new work.

While weekly figures can be volatile around the holidays, the number of claims remains elevated. About 20.65m people are receiving unemployment benefits of some kind nine months since the coronavirus crisis began in the US.

Column chart of Initial claims, millions showing US unemployment claims rose again last week

A resurgence in coronavirus cases and fresh curbs imposed by some states have hurt the labour market rebound and are denting the broader US economy. The US added just 245,000 jobs in November, and the unemployment rate is 6.7 per cent. Retail sales last month fell by the most in seven months at the start of the holiday shopping season, raising fears that consumer spending is slowing. 

Officials hope that Covid-19 vaccines that began to be administered in the US this week will help move the economy to a firmer footing. Still, it could be months until the jabs are widely distributed.

Until then, the burden to prop up the economy has fallen on the Federal Reserve and Congress. The Fed on Wednesday pledged to keep buying debt until “substantial further progress has been made” in the recovery, but its actions fell short of expectations for more forceful measures. Fed chair Jay Powell again stressed that fiscal stimulus was needed to more effectively support the economy in the coming months. 

Congressional leaders are working towards a $900bn stimulus package, with a number of relief measures including benefits for self-employed and gig workers set to expire at the end of the month — just as state restrictions are expected to exacerbate strains on the labour market.

The disappointing jobless figures heap further pressure on lawmakers to reach a solution soon. Among other issues, Republicans want to reduce federal jobless benefits to make way for a new round of stimulus cheques, while Democrats are fighting for both.

About 14m unemployed Americans who collect aid from federal programmes set up this year — the PUA and the Pandemic Emergency Unemployment Compensation programme, which provides 13 weeks of federal benefits to people who have exhausted state aid — stand to lose these benefits by the year-end unless Washington acts.

“The labour market recovery was on a good track before this recent surge in Covid cases, which has caused a significant turn for the worse,” said Thomas Simons, economist at Jefferies. “This is why it is critical that Congress provide additional funding for aid to unemployed workers until the vaccine is more widely distributed.”

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