By Josh Mitchell 

The number of Americans filing initial claims for unemployment insurance fell last week to the lowest level since the pandemic began, suggesting layoffs are easing despite a rise in coronavirus infections.

Initial jobless claims, a proxy for layoffs, fell by 40,000 to 751,000 in the week through Oct. 24, the Labor Department said Thursday. That was the lowest level of claims since mid-March, just before the pandemic shut down much business activity throughout the U.S.

Daily virus infections reached new highs over the past week, and it is too early to tell how employers and consumers will respond.

Claims remain exceptionally high by historical standards. Last week's new claims were more than three times the weekly average early this year, before the pandemic. Initial claims, which reflect the number of people laid off only recently and not those receiving assistance for more than a week, are just one measure of unemployment assistance. In total, more than 20 million Americans are still receiving unemployment benefits through regular state and emergency programs.

Anecdotal evidence -- companies big and small announcing plans to lay off more workers as the pandemic persists -- suggests the labor market recovery will be protracted.

"The fact that claims have significantly improved from the worst parts of the crisis, while still extremely elevated at three times that of pre-crisis levels, is a daunting reality that suggests layoffs continue to ripple through the economy," Daniel Zhao, senior economist for Glassdoor, said in a note to clients.

The biggest threat right now is a rise in infections. The average number of new coronavirus cases reported daily over the past week reached a new peak of 68,767 on Monday. States and cities could impose new restrictions on businesses in response, as European countries have done. Consumers could also hunker down again, cutting back on travel, eating out and shopping.

"The easy gains have been had so far," said Brett Ryan, senior U.S. economist at Deutsche Bank. "We don't think that you're going to see the draconian shutdowns that you had at the beginning of the pandemic. It's going to be much more localized, but that alone keeps firms cautious."

Employers have been increasing their payrolls for months after severe staffing cuts in the spring. They shed 22.2 million jobs in March and April, during the worst of the shutdowns, and have added 11.4 million since then as restrictions eased.

But the monthly job gains have slowed since June. Employers added 661,000 jobs in September, less than half the 1.5 million added in August. The unemployment rate -- 7.9% in September -- remains more than twice as high as in February, when it tied a 50-year low of 3.5%.

More than half the economists responding to a Wall Street Journal survey this month said they didn't expect the country to claw back until 2023 or later all the jobs lost as a result of coronavirus-related shutdowns.

The strong job growth over the summer largely reflected businesses such as restaurants and hospitals staffing back up quickly after being shut down for weeks.

Many businesses continue to operate below capacity. Many restaurants, for example, have been serving diners only outside or at half-capacity indoors to space out tables to comply with social-distancing rules.

The labor market faces at least two other threats. One is cold weather. Businesses moving indoors during the winter could risk further spread of the virus, which could prompt additional shutdowns.

The second is the expiration of enhanced unemployment benefits that the Trump administration had put in place this summer to boost the amount workers receive for unemployment compensation. When those run out, consumers might cut spending, which could prompt businesses to lay off workers.

Failed efforts by Congress and the White House to pass a new federal relief package "will likely result in more small business closures and state and local layoffs in the fourth quarter," David Kelly, chief global strategist of JPMorgan Funds, said in a note to clients this week.

"Most important, there continue to be wide swaths of the U.S. economy which simply cannot get back to normal in a worsening pandemic," Mr. Kelly said, "including travel, leisure, entertainment, restaurants and bricks-and-mortar retailing."

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(END) Dow Jones Newswires

October 29, 2020 09:43 ET (13:43 GMT)

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