Jobless claims increase raises questions about U.S. economic recovery

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The coronavirus is spreading again and that’s bad news for the U.S. economy.

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A pair of closely followed signposts on the U.S. economy raised warning signs on Thursday about whether growth is flagging amid a fresh outbreak of the coronavirus and a lack of federal fiscal stimulus.

The number of people applying for unemployment benefits, known as initial jobless claims, rose in early October to the highest level in seven weeks. They increased 53,000 to 898,000 and are still four and a half times higher compared to pre-crisis levels.

Read: Jobless claims climb 53,000 to 7-week high of 898,000, point to more labor-market woes

A survey of manufacturers in New York state, meanwhile, showed slower growth in October and fell short of Wall Street expectations.

Many economists have been warning about a relapse in U.S. growth without fresh federal aid, but Congress is still deadlocked and another relief bill is unlikely until after the election in November.

“These data, the stimulus-stalemate, new virus cases and a vitriolic election season, suggest [the fourth quarter] could be a period of relative weakness coming at a time of fragility,” said Troy Ludtka, U.S. economist at Natixis CIB.

It’s probably too soon to draw any firm conclusions, however.

Economists point out the weely jobless claims report has been rife with problems and say one week’s worth of data is not indicative.

The New York Federal Reserve’s Empire State survey, what’s more, still showed manufacturers expanding for the fourth month in a row even if growth has slowed. A similar survey compiled by the Philadelphia Fed was even stronger, surging to the highest level since the pandemic began in March.

Read: Philadelphia Fed index outperforms NY Empire State survey in October

What to make of it all? Wall Street
economists are still worried about the threat of another relapse and are watching closely for signs of deterioration.

“A sustained recovery will not occur until a vaccine is widely available, likely in mid-2021 at best,” wrote Ryan Sweet, head of monetary policy research at Moody’s Analytics.

“Further, the breakdown of talks for additional fiscal stimulus to support households, businesses, and state and local governments will further weaken an already-fragile labor market recovery.”

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