U.S. jobless claims jump to two-month high amid surge in California

The numbers: The number of people who applied for U.S. unemployment benefits in late September rose to a two-month high owing to another big increase in California. Yet new claims have fallen in most other states in a sign the labor market is still quite healthy despite the delta variant.

New jobless claims paid traditionally by the states rose by 11,000 to 362,000 in the seven days ended Sept. 25, the government said Thursday.

Economists polled by The Wall Street Journal had estimated new claims would total a seasonally adjusted 330,000.

At least 6.5 million Americans, meanwhile, lost their unemployment benefits in early September when a federal-relief program set up during the pandemic expired.

Although it was already known that millions had been cut off, the government’s latest estimate of new unemployment claims was the first to include official numbers.

New jobless claims had been falling for months even before the looming cutoff of federal benefits, reflecting a surge in hiring and a reluctance by businesses to fire anyone in light of a major labor shortage.

Read: The Fed has bet on a future of low inflation. Here’s what could go wrong

Most of the people who lost benefits are likely to rejoin the labor force in the coming months and make it easier for companies to hire. A lack of labor is one of the biggest impediments to a faster economic recovery from the coronavirus.

Big picture: The economy is still growing at a rapid if somewhat slower pace compared to a few months ago. The rise of the coronavirus delta variant briefly knocked it off stride, but growth has mostly held steady.

Read: Half of all small businesses can’t find enough workers to fill open jobs

The economy could expand even faster if more people returned to the labor force, but millions of Americans are still too hesitant to go back to work even with many companies offering higher pay and benefits.

The loss of extra jobless benefits could also weigh on consumer spending and the economy in the short run.

Key details: New jobless claims jumped last week by almost 18,000 in California to 86,792, based on unadjusted numbers. Just three weeks ago, the state had reported fewer than 52,000 new claims.

The state is still working through a large backlog of applications that had yet to be processed. California was also hit fairly hard by delta, though cases are now falling.

Michigan, another state where delta cases have surged, was the only other state to report a big increase in new jobless claims.

New jobless claims fell last week in 35 other states.

The number of people already collecting state jobless benefits, meanwhile, dropped by 18,000 to a seasonally adjusted 2.8 million. These so-called continuing claims are near a pandemic low.

Altogether, some 5 million people were reportedly receiving jobless benefits through eight separate state or federal programs as of Sept. 11. That’s down from 11.3 million in the prior week.

Yet 2.1 million of those 5 million claims were filed through the federal programs, but it’s unclear if any of them will be paid out.

The federal program paid extra benefits to all jobless workers, including millions of self-employed who had never been eligible for compensation in the past.

What they are saying?

“Over the last few weeks, claims in California have consistently been higher than the other 49 states,” noted money market economist Thomas Simons of Jefferies LLC. ” It is certainly possible that there is an economic factor driving claims higher California while they are trending lower in the other 49 states, but this seems unlikely.”

“Alternatively, California claims may be elevated due to backlog processing or even fraud,” he added. “At this point, it is difficult to tell.”

Market reaction: The Dow Jones Industrial Average

and S&P 500

were rose in Thursday trades.

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