Pandemic Tightens Its Grip on US and European Economies as Jobless Claims Surge

On Thursday, the U.S. government reported that 853,000 Americans applied for unemployment benefits last week, up from 716,000 the week before and the most since September. Before the coronavirus shut down the economy in March, weekly claims typically ran around 225,000. The jump showed that many companies are still cutting workers as states reimpose business shutdowns and consumers stay away from shopping, travel and restaurants.

One of those people is Montrell McGraw, 26, of New Orleans. He lost his job as a cook at a Hilton hotel in March, just after the virus arrived in the United States. He has applied for 35 jobs without success. His experience is in restaurants, few of which are hiring, and most openings he sees are in trucking or offshore oil rigs, which require certifications he cannot afford. His unemployment benefit is $222 a week. He has just cancelled his car insurance, so he can no longer drive, which will make job hunting harder, and he is behind on rent. He covered his bills when the federal government added $600 a week in jobless aid, but that program ended in July. He has also worked with the advocacy group Step Up Louisiana to press for an extension of benefits. "I didn't ask for this," he said, adding that he is playing a bad hand. If Congress extends aid, he said, "maybe then I can get my car insurance back."

The broader data point the same way. The number of people receiving state unemployment aid rose for the first time in three months, from 5.5 million to 5.8 million, a sign some employers have pulled back on hiring. AnnElizabeth Konkel, an economist at the job site Indeed, said this suggests the December jobs report, due in early January, could show a net loss of jobs for the first time since April. She called Thursday's report the first overt signal of a backward slide and said the labour market is still in crisis. Gus Faucher of PNC Financial said the virus is affecting consumers, the labour force and businesses, and that there are reasons for concern.

Consumer spending is soft. Opportunity Insights, a research centre affiliated with Harvard and Brown, found debit and credit card spending fell nearly 12% in the week ending Nov. 29 compared with a year earlier, after a drop of just 2.3% the week before. Card data show holiday spending trailing prior years. In November, U.S. employers added jobs at the slowest pace since April, and restaurants, bars and retailers all cut jobs.

The claims increase was widespread. New applications rose by more than 47,000 in California, 31,000 in Illinois, 17,000 in New York and 13,000 in Georgia. Texas, which has generally not imposed stricter business rules, saw claims climb by nearly 20,000 to 45,000. Part of the rise may be a rebound after Thanksgiving week, when applications had fallen, but the increase was far larger than most economists expected.

In Europe, the European Central Bank announced it will expand its bond-buying program to hold down long-term interest rates and encourage borrowing and spending. The decision came on the day Germany, Europe's largest economy, recorded its highest single-day virus death toll, and as France shut restaurants, bars, gyms, movie theatres and museums.

The U.S. Federal Reserve meets next week. It may give more detailed guidance on how long its own bond-buying will continue, which could reassure markets, and it could shift purchases toward longer-term bonds, though most analysts expect it to hold that step in reserve.

The larger deadline falls on Congress. More than 19 million people depend on some form of unemployment benefit, and nearly half could lose it in just over two weeks, on Dec. 26, when two federal programs expire. One covers the self-employed and contract workers; the other extends aid for 13 weeks. 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. Many economists expect a strong rebound next year as a vaccine nears approval, but most say another relief package is urgently needed to carry workers, small businesses and state and local governments until then.