By Lucia Mutikani
WASHINGTON (Reuters) - The number of Americans filing new claims for unemployment benefits rose further last week as California moved more people to another program following the expiration of government-funded aid early this month to maximize their access to assistance.
The labor market recovery remains intact, with the report from the Labor Department on Thursday showing unemployment rolls steadily shrinking in mid-September. California announced on Sept. 17 that about 340,000 people on the Pandemic Emergency Unemployment Compensation (PEUC) program, which expired on Sept. 4, had been transferred to the Federal State Extended Duration program that remained in effect until Sept. 11.
California's Employment Development Department said the transfer, which allowed PEUC claimants to collect one additional week of benefits, would show a large increase in claims filed, even though it reflected an existing claimant moving from one program to another. The PEUC was part of expanded unemployment programs which were funded by the federal government to cushion the blow of the COVID-19 pandemic on unemployed Americans.
Aside from the California distortions, a resurgence in COVID-19 infections, driven by the Delta variant of the coronavirus, could have caused a modest rise in claims as some companies in the high-contact services industries laid off workers because of reduced demand. Infections are subsiding, leading to a pickup in economic activity.
"The increase in initial claims is less concerning than it may appear," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania. "The rise in new filings in California could be capturing refiles."
Initial claims for state unemployment benefits rose 11,000 to a seasonally adjusted 362,000 for the week ended Sept. 25. That was the third straight weekly increase.
Economists polled by Reuters had forecast 335,000 applications for the latest week. Unadjusted claims, which economists say offer a better read of the labor market, fell 8,326 to 298,255 last week.
Claims in California increased 17,978 last week, adding to the 17,218 rise in the prior week. There was also a rise in applications in Michigan last week, likely related to the idling of assembly plants by some automakers as they try to manage their supply of semiconductors amid a global shortage.
Claims in Texas also rose significantly, probably linked to high coronavirus cases in the state. But there were big declines in filings in Virginia, Maryland, Arizona, Ohio and Louisiana. Claims, which have dropped from a record 6.149 million in early April 2020, remain above their pre-pandemic levels.
Stocks on Wall Street were trading lower, leaving the benchmark S&P 500 on course to snap its seven-month winning streak. The dollar slipped against a basket of currencies. U.S. Treasury prices fell.
Jobless claims: https://graphics.reuters.com/USA-STOCKS/lbvgngxxwpq/joblessclaims.png
UNEMPLOYMENT ROLLS SHRINKING
The claims report also showed the number of people continuing to receive benefits after an initial week of aid dropped 18,000 to 2.802 million in the week ended Sept. 18, a sign that more people were finding work.
The so-called continuing claims covered the week during which the government surveyed households for September's unemployment rate. Continuing claims decreased slightly between the August and September survey periods.
The unemployment rate was at 5.2% in August. The claims data is being watched for signs of how soon a shortage of workers, which is constraining hiring, will start easing after the expiration of the expanded benefits.
Businesses and Republicans blamed those benefits for keeping the unemployed at home. There were a record 10.9 million open jobs at the end of July. More than 6 million people are estimated to have lost their pandemic benefits on Sept. 6.
The total number of people collecting unemployment checks under all programs tumbled to 5.028 million during the week ended Sept. 11 from 11.250 million in the prior week.
"So far, there has been little evidence that enhanced benefits were significantly holding back workers from re-entering the labor force," said Isfar Munir, an economist at Citigroup in New York. "Employment has grown similarly in states that ended the benefits early and those that ended them later."
The economy created 235,000 jobs in August, the fewest in seven months. Lack of childcare, fears of contracting the coronavirus and pandemic-related career changes have been blamed for the worker shortage.
Federal Reserve Chair Jerome Powell told lawmakers on Thursday that caretakers and retirees made up most of the shortfall in labor force participation. Powell said he was optimistic that a big chunk of retirees would return to the labor force.
A separate report from the Commerce Department on Thursday showed the economy grew at a slightly faster 6.7% annualized rate in the second quarter, revised up from the 6.6% pace reported in August. Growth was driven by pandemic relief money from the government, which boosted consumer spending. The economy grew at a 6.3% rate in the first quarter.
Growth appears to have slowed in the third quarter because of the Delta variant as well as shortages of raw materials, which have hurt motor vehicle sales and constrained home building and purchases. Gross domestic product estimates for the third quarter are below a 5% rate.
"The economy is set to regain traction after a late summer lull," said Lydia Boussour, lead U.S. economist at Oxford Economics in New York.
"We expect a slowly improving health situation, solid household finances, a rebuild of inventories and additional fiscal stimulus will support growth momentum in 2022."
(Reporting By Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci)