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US Initial Claims Still Elevated, Backlogs Continue

US initial claims fell by 603,000 to 3.839 million in the April 25 week, ahead of the 3.50 million level expected, as reports suggest that displaced workers continue to encounter filing issues.

Add that to additional announced layoffs, and the actual level of initial filings will remain high for several more weeks.

The total number of new claims filed since the start of the COVID-related shutdowns six weeks ago has reached 30.3 million.

Unadjusted claims fell by 792,387 million in the current week, with particularly large declines in California (-200,318), Florida (-74,205), Connecticut (-69,771), New Jersey (-69,122) and Pennsylvania (-63,312). However, claims rose in Washington state (+62,282), Georgia (+17,815) and New York (+13,728).

Continuing claims, the total number of people currently receiving benefits, rose by 2.174 million to a record 17.992 million in the April 18 employment survey week, well above the 1.784 million level in the March 14 survey week. The insured unemployment rate jumped to a record high 12.4% from 10.9% in the previous week.

The level of continuing claims will continue to rise until it approaches the total number of initial claims filed since the start of the shutdown, based on the assumption that most filers will not return to work until it ends.

In other data released on Thursday, personal income fell by 2.0% in March, below the 1.1% decline expected. The large payrolls decline and shorter workweek more than offset a rise in hourly earnings in March, pulling down wages and salaries by 3.1%.

The other income data were mixed. Proprietors’ income plunged by $145.2 billion after a $55.5 billion increase in the previous month, putting into perspective how quickly things turned around. Return on assets declined by $3.9 billion due to a drop in interest rates.

These declines were partially offset by a $52.2 billion gain in current transfer receipts, particularly a surge in unemployment insurance. The April release will show an even larger surge in this category.

On the spending side, current-dollar personal consumption expenditures rose by 7.5%, well below the 4.5% decline expected. The March retail sales report released on April 15 showed significant declines in every category other than a surge in spending at grocery stores. This translated to declines in both goods PCE, which fell by 3.1% on motor vehicles, and services PCE, which declined 9.5% on declines in medical services, food services and accommodations.

After adjustment for a 0.3% decline in the PCE price index, real PCE fell by 7.3% after small gains in January and February. The GDP data released on Wednesday showed that real PCE fell by 7.6% for the first quarter, so most of the quarterly drop was due to the last few weeks of March.

An even larger COVID-19 impact will be seen in the April retail sales and PCE measures as a full month of shutdown is captured.

Core PCE prices fell by 0.1% in March, as expected, after 0.2% gains in the previous three months. The year-on-year rate slowed to 1.7% from 1.8% in the previous month.

Employment costs rose by 0.8% in the first quarter after a 0.7% gain in the previous quarter. Analysts had expected a 0.6% increase. An acceleration in wage costs more than offset a slowdown in benefits cost growth.

The first quarter employment cost data mostly preceded the full impact of the COVID-related layoffs. Given the sharp decline in March payrolls and the likelihood that those jobs will remain vacant for several months, employment costs should reverse for the duration of the second quarter – if not longer.

Finally, the April Chicago PMI fell to 35.4 when 37.9 was expected from 47.8 in March, in line with sharp declines seen in other regional data.

Kevin Kastner

Julie Ros

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