US jobless claims and slowing spending underpins economic drag of Covid-19

Consumer spending and incomes both fell in November by more than forecast

US filings for unemployment benefits declined for the first time in three weeks but remained elevated. Alamy

US filings for unemployment benefits declined for the first time in three weeks but remained elevated, while consumer spending and incomes fell in November by more than forecast, underscoring the coronavirus’s drag on the economy.

Initial jobless claims in regular state programmes dropped by 89,000 to 803,000 in the week ended December 19, according to the Labour Department figures released on Wednesday, compared with the median projection of economists for 880,000. On an unadjusted basis, claims fell by about 73,000.

A separate Commerce Department report showed consumer spending, which accounts for a majority of the economic activity, dropped 0.4 per cent last month – the first decline since April. Personal income decreased 1.1 per cent, reflecting the winding down of several pandemic aid programmes in the country.

The data show a US economy limping into year end and suggest many Americans will struggle in coming months as coronavirus cases surge across the nation. More businesses also face closure or layoffs amid colder weather and reduced foot traffic.

Vaccine distribution offers hope on the horizon, and the fiscal stimulus package approved by Congress this week should offer some relief, though President Donald Trump’s remarks late on Tuesday put the fate of the deal in question.

US stock futures remained higher following the release of reports.

The Labour Department figures showed continuing claims, which roughly approximate the pool of total state benefit recipients, decreased by 170,000 to 5.34 million in the week ended December 12. This figure does not include the millions on federal pandemic aid programmes, which are set to be extended under the new fiscal stimulus package.

Even with the drop in initial jobless claims, the level remains almost quadruple to what it was before the pandemic, and the four-week average edged up to a two-month high. California and New York made up most of the drop on an unadjusted basis.

More than half of states reported a decline in initial claims, while Illinois, Virginia and Pennsylvania experienced an increase in claims last week.

The decline in spending, which exceeded estimates in Bloomberg’s survey of economists, followed a downwardly revised 0.3 per cent increase in October. Spending on goods fell 1 per cent, driven by clothing, footwear and new motor vehicles. Services outlays slipped on decreases for food services and accommodations.

Also on Wednesday, data showed orders for US durable goods rose in November by more than forecast. But a proxy measure for business investment – non-defense capital goods orders excluding aircraft –increased by 0.4 per cent, less than the 0.6 per cent estimate. It follows an upwardly revised 1.6 per cent advance in October.

The weekly jobless claims report is usually released on Thursday, but was moved ahead because the federal government will be closed December 25.

Other reports being released on Wednesday include new home sales for November and the final December reading for the University of Michigan’s consumer sentiment index.