US hits fiscal cliff with jobs, economic recovery in the balance

The US push to fire up its economy in the middle of a pandemic remained stalled last week with signs the lapse of emergency unemployment benefits and business grants may have begun taking a toll.

Hiring at small businesses, shifts worked across a range of industries, credit card spending and even gasoline demand that typically grows through the summer remained flat and mired far below the levels a year ago.

Initial filings for unemployment insurance did fall below 1 million for the first time since the March onset of the coronavirus-driven economic downturn, and the number of people continuing to collect benefits fell 604,000 to 15.486 million in the week ending August 1.

The outcome led a New York Federal Reserve weekly index of projected growth in gross domestic product to improve slightly.

But while the claims statistics indicate some rehiring continues, the numbers remain massive by historical standards. Concerns are growing that the continued spread of the virus and the inability of the White House and US Congress to agree on new government support for ailing businesses and the unemployed may stifle the recovery altogether.

“The recovery seems to be losing steam,” said AnnElizabeth Konkel, an economist with job site Indeed Hiring Lab where postings rose for the 14th straight week but at the smallest pace since early May. “It’s promising that initial unemployment claims have fallen, but there’s still a long road ahead.”

The risks may be mounting. Much of the US economy depends on consumer spending and a key support lapsed in July when Congress failed to extend a $600 weekly supplement to unemployment insurance. The pandemic payments had been authorised by lawmakers in March along with forgivable loans extended to hundreds of thousands of small businesses.

The combination of that support led personal income to grow despite widespread layoffs, supported jumps in retail spending in May and June, and allowed many Americans to bolster savings and pay down debt - unusual in a recession.

The high savings rate may pad family spending for a while. An initial hint on whether households are continuing to spend or getting nervous about the lengthening downturn will come on Friday with the release of July retail sales data. Retail sales are expected to have risen 1.9% last month, according to the consensus estimate of analysts polled by Reuters.

Broader measures tracking the overall recovery have shown little improvement. An Oxford Economics index combining health, economic and social data fell last week, and has shown little change since mid-June.

The number of employees on the job at small businesses whose time records are kept by Homebase fell slightly, and growth in factory work shifts showed little change among companies whose time records are maintained by data firm Kronos.

The 0.5% increase in time clock “punches” for the week ended Aug. 9 contrasts with average weekly growth of 2.7% in May and 1.9% in June, “reinforcing the much slower labour recovery phase” that seemed to take root after the July 4 holiday, said Dave Gilbertson, vice president of strategy and operations at Kronos.

The weight of that may already be falling on “high-touch” service businesses, many of them small firms like restaurants, bars, gyms and beauty parlors, whose fortunes were a motivation for both the US government’s Paycheck Protection Programme of loans to small businesses and for the push to lift pandemic restrictions sooner rather than later.

Data from Unacast showed a surge of foot traffic to those industries spread across many states in June, stalled in July, and fell through the first week of August.