Across US and Europe, Pandemic's Grip on Economies Tightens as Jobless Claims Surge

Montrell McGraw, 26, has stopped driving. He cancelled his car insurance in New Orleans because the $222 a week he gets in unemployment benefits can't cover the payments, and he is behind on his rent as well. He lost his job as a cook at a Hilton hotel in March, just after the virus took hold in the United States, and he has applied for 35 jobs without an offer.

His situation sits inside a larger number. The government reported on Thursday that 853,000 Americans applied for unemployment benefits last week, up from 716,000 the week before and the most since September. Before the pandemic paralyzed the economy in March, weekly claims typically ran around 225,000. The jump showed that many companies are still shedding workers as states reimpose business shutdowns and consumers pull back from shopping, travelling and dining out.

The increase was broad. New applications rose by more than 47,000 in California, 31,000 in Illinois, 17,000 in New York and 13,000 in Georgia. Many states, California especially, have adopted sweeping new restrictions. But even some states that have generally avoided stricter rules saw sharp increases: in Texas, claims climbed by nearly 20,000 to 45,000. Part of the rise may be a rebound after claims dipped during Thanksgiving week, though it was much larger than most economists expected.

Other indicators point the same way. Card data show consumers have spent less this holiday season than in previous years. Opportunity Insights, a research centre affiliated with Harvard and Brown, found debit and credit card spending fell nearly 12% in the week ended Nov. 29 compared with a year earlier, after a drop of just 2.3% the week before. In November, U.S. employers added jobs at the slowest pace since April, and restaurants, bars and retailers all cut jobs.

One detail worried economists in particular. The number of people receiving state-provided unemployment aid rose from 5.5 million to 5.8 million, the first increase in three months, suggesting some companies have pulled back on hiring. AnnElizabeth Konkel, an economist at the job site Indeed, said it could mean the December jobs report, due in early January, shows a net loss of jobs for the first time since April. "Today's report is the first overt signal of a backward slide," she said, adding that the labour market is still in crisis. Gus Faucher of PNC Financial said there are reasons for concern as the virus affects consumers, workers and businesses.

Europe faces similar pressure. On Thursday the European Central Bank said it will expand its bond-buying program to hold down longer-term interest rates and encourage borrowing and spending. The announcement came as Germany, Europe's largest economy, recorded its highest single-day virus death toll, and as France shut restaurants, bars, gyms, movie theatres and museums. When the U.S. Federal Reserve meets next week, it may give more detailed guidance on how long its own bond purchases will continue. It could also shift purchases toward longer-term bonds, though most analysts expect it to hold that step in reserve.

The deadline that matters most is Dec. 26. More than 19 million people depend on some form of unemployment benefit, and nearly half of them would lose it when two programs created in the spring expire. One covers self-employed and contract workers, who were previously ineligible; the other adds 13 weeks of extended aid. A bipartisan group of senators has proposed a $908 billion package that would extend both for four months. Without it, more than 9 million people would lose benefits, making it harder to pay for bills, food, rent and mortgages.

McGraw knows what that gap looks like. He covered his bills when the federal government paid an extra $600 a week, but that ended in July. Most openings he sees are in trucking or offshore oil work, which require certifications he can't afford, and few restaurants are hiring. He has worked with the advocacy group Step Up Louisiana to press for an extension. "I am trying to play the cards I am dealt with, and I have a really bad hand," he said. If Congress acts, he said, "Maybe then I can get my car insurance back."

Many economists expect a strong rebound next year with a vaccine nearing approval, but most warn that another relief package is urgently needed to carry unemployed workers, small businesses and state and local governments until then.