By Sarah Chaney 

The number of applications for unemployment benefits has held steady in September at just under 900,000 a week, suggesting the labor-market recovery is stalling as layoffs restrain hiring gains six months into the pandemic.

Jobless claims increased slightly to 870,000 last week from 866,000 a week earlier, according to Thursday's Labor Department report. The totals remain well above pre-pandemic peaks but are down significantly from nearly 7 million in March.

The elevated number of claims is a sign that layoffs have continued at a high rate. Some employers that held on to workers at the beginning of the economic crisis are now reducing their head counts due to persistently weak demand.

At the same time, many workers are also returning to their previous jobs or finding new ones, helping bring down the jobless rate to 8.4% from near 15% in April and spur hiring gains. Re-employment has also contributed to a decline in the number of people collecting unemployment benefits through regular state programs, which cover most workers. So-called continuing claims decreased by 167,000 to about 12.6 million for the week ended Sept. 12.

Taken together, elevated layoffs and continued rehiring point to an economy that is slowly healing.

"The labor market is not out of the woods yet. It's still a very challenging and weak labor market, but that said...it's moving in the right direction," said Kathy Bostjancic, an economist at Oxford Economics.

Millions of workers are collecting jobless benefits through a federal pandemic program for the self-employed, gig workers and others not typically eligible for unemployment aid. At the beginning of September, about 11.5 million people were claiming benefits through this program, a decrease of about 3 million from a week earlier, driven by a large drop in California, according to the Labor Department. Many economists are skeptical about the accuracy of pandemic claims figures, given the sharp revisions to the numbers and widespread unemployment fraud tied to the program.

Swaths of the economy are showing signs of slowly regaining ground as the pandemic passes its half-year mark. Consumer spending and job gains continued in August but at a slower pace than earlier in the summer. U.S. service-sector and manufacturing companies reported solid but cooling growth in September. Earlier this week, Federal Reserve officials implored Congress to enact more fiscal stimulus to boost the speed of the recovery.

Economists expect the initial hiring spurt from business reopenings to ease as state restrictions are lifted at a slower pace than in early summer.

"We're getting to that point where the easy hiring is behind us," said Ryan Sweet, an economist at Moody's Analytics. "This next leg of the recovery is going to be much more driven by the underlying strength of the economy rather than businesses just recalling workers."

Many employers brought back a portion of their furloughed employees but are finding sales are too weak to raise employment to precrisis levels.

Peter Merriman reopened four of the nine restaurants he owns across Hawaii in August, but slow sales meant he could hire back only about 40% of the staff who were working at those locations before the pandemic began. He said sales at those restaurants, which operate under the Merriman's Restaurants brand, are down about 80% from the same period last year.

"It's really scary," Mr. Merriman said. "We know that we'll eventually come back, it's just a question of when and how."

Many workers are experiencing monthslong spells of unemployment. In the first week of September, about 1.6 million individuals were collecting benefits through a federal program that provides an additional 13 weeks of benefits for people who run through the benefits' duration set by states. Benefits last for six months in many states.

In addition to the federal emergency programs, Congress also passed legislation this spring authorizing federal funding for an additional $600 a week in unemployment benefits. After those benefits expired, President Trump signed an executive order last month to replace them with an additional $300. The $300 top-off payments will only last up to six weeks, and Congress has yet to reach an agreement on a new federal jobless benefit.

--Kim Mackrael contributed to this article.

Write to Sarah Chaney at sarah.chaney@wsj.com

(END) Dow Jones Newswires

September 24, 2020 11:11 ET (15:11 GMT)

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