By Lucia Mutikani
WASHINGTON (Reuters) – The number of Americans filing new claims for jobless benefits fell last week but remained at recession levels, while personal income dropped in August, underscoring the need for another government rescue package for businesses and the unemployed.
The decline in initial claims reported by the Labor Department on Thursday likely reflected a decision by California to suspend the processing of new applications for two weeks to combat fraud. Economists are warning that the economy and labor market recovery from the COVID-19 slump could sputter without an infusion of new money from the government.
House of Representatives Speaker Nancy Pelosi, a Democrat, and Treasury Secretary Steven Mnuchin are working toward a bipartisan agreement for another fiscal package.
Initial claims for state unemployment benefits decreased 36,000 to a seasonally adjusted 837,000 for the week ended Sept. 26. Economists polled by Reuters had forecast 850,000 applications in the latest week.
California is using the two-week pause to reduce its claims processing backlog and implement fraud prevention measures. The Labor Department acknowledged the suspension could result in “significant” week-to-week swings in initial claims “unrelated to any changes in economic conditions.”
The department said California’s initial claims data would reflect the level reported during the last week prior to the pause. The data would be updated when California resumes processing new applications.
Claims have hovered at higher levels after dropping below 1 million in August as the government changed the way it strips seasonal fluctuations from the data. They are above their peak of 665,000 during the 2007-2009 Great Recession, though filings have dropped from a record 6.867 million at the end of March.
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Labor market gains from the reopening of businesses are fading and economists are predicting a slowdown in hiring through the rest of this year and into 2021.
New coronavirus cases are rising, with a surge expected in the fall, which could lead to some restrictions being imposed on businesses in the services sector. In addition, political uncertainty is rising and could extend beyond the Nov. 3 presidential election, and make businesses reluctant to hire.
Several months after operations resumed, demand has remained poor, especially in the services sector, leading some establishments to permanently shut down and keeping job cuts elevated. Walt Disney Co. said on Tuesday it would lay off roughly 28,000 employees in its theme parks division.
The claims report also showed the number of people receiving benefits after an initial week of aid dropped 980,000 to 11.767 million in the week ending Sept. 19. There were 26.5 million people receiving unemployment benefits in the week ending Sept. 12.
Stocks on Wall Street opened higher as investors remained hopeful of fiscal stimulus. The dollar slipped against a basket of currencies. U.S. Treasury prices fell.
The government is scheduled to publish its closely followed employment report on Friday. Nonfarm payrolls likely increased by 850,000 jobs in September after rising by 1.371 million in August, according to a Reuters survey of economists. That would leave employment 10.7 million below its level in February.
Employment growth peaked in June when payrolls jumped by a record 4.781 million jobs.
A separate report on Thursday from the Commerce Department showed personal income dropped 2.7% in August, reflecting a decrease in unemployment insurance benefits. A $600 unemployment subsidy ended in July and was replaced by a $300 supplement. Income increased 0.5% in July.
The unemployment subsidy has helped to anchor consumer spending, but funding for the program is running out.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 1.0% in August after increasing 1.5% in July.
That has helped to put the economy on track for record growth in the third quarter after a historic slump in the April-June period. But with fiscal stimulus ebbing, the economy is shifting into low-growth gear heading into the fourth quarter.
Third-quarter GDP growth estimates are topping a 32% annualized rate. The economy contracted at a 31.4% pace in the second quarter, the deepest decline since the government started keeping records in 1947. Growth estimates for the fourth quarter have been cut to around a 2.5% rate from above a 10% pace.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci and Paul Simao)