UI Claims Rise Slightly As Progress Stalls

Initial unemployment insurance (UI) claims rose last week, on a non-seasonally adjusted basis. UI claims have made almost no progress so far in September, unchanged from the end of August. Additionally, this week's report gives us one last glimpse of a slow labor market recovery before impending data and reporting issues over the next few weeks obscure the UI claims data.

Initial UI claims rose by 28,527, increasing to 824,542 from 790,015, on a non-seasonally adjusted basis, according to the latest figures from the Department of Labor for the week ending September 19. On a seasonally-adjusted basis, 870,000 initial UI claims were filed, a marginal increase from 866,000 in the prior week.

Pandemic Unemployment Assistance (PUA) claims are slowly reversing their dramatic spike in late August, dropping back to 630,080, largely due to the drop in PUA claims in California after the implementation of new anti-fraud measures. PUA claims are still elevated compared to early August levels and should be taken with a grain of salt as they likely do not reflect a significant worsening of conditions on the ground.

Non-seasonally adjusted continuing claims for UI fell to 12.3 million for the week ending September 12, the reference week for the September jobs report. Continuing claims have fallen 1.6 million since the August reference week, a slowdown from the 2.9 million decline between the July and August reference weeks. Continuing claims have not been a reliable predictor of the jobs report in the last few months, but nevertheless, the slowing improvement in continuing claims points to a slowing recovery.

What to Watch in Coming Weeks

California will not accept new UI applications for 2 weeks starting on September 19 while it undergoes a reset to reduce its claim backlog, mitigate fraud and improve their systems. California currently accounts for 28 percent of initial UI claims, so data over the next few weeks will reflect a drastic undercount of new weekly claims.

PUA claims remain elevated because of fraud and reporting issues. While California's reset should mitigate issues there, PUA claims continue to climb in other states like in Arizona. It remains to be seen whether and when PUA claims data will normalize to a more plausible level.

Benefit exhaustion is looming for many unemployed Americans. Many states offer 26 weeks of traditional UI benefits, which are now beginning to expire for Americans newly unemployed at the start of the crisis in March. As a result, continuing claims for traditional UI should decline over the next month as claimants shift to the Extended Benefits, Pandemic Emergency Unemployment Compensation and Pandemic Unemployment Assistance programs or lose UI benefits entirely.