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US economy stumbles as coronavirus spreads widely

Layoffs are rising again and Americans’ incomes are dropping, the latest signs that a resurgence of a pandemic and declining government assistance are undermining the U.S. economic recovery.

Claims for state unemployment benefits rose for the second week in a row last week, the Labor Department said on Wednesday. Unemployment reports have risen by more than 100,000 from the first week of November, when they hit their lowest level since last spring, the start of the pandemic.

Forecasters have been warning for weeks that rising coronavirus cases could have dire economic consequences as consumers cut spending and cities and states reimpose restrictions on businesses and social gatherings. But while job gains and other markers of progress have slowed since the summer, the recovery has proved surprisingly resilient.

Now cracks are starting to appear. Unemployment claims, unadjusted for seasonal trends, jumped from 78,000 last week to nearly 828,000 – a big change after rising 18,000 the week before. It was the first time that deposits had increased for two consecutive weeks since the beginning of September, and the largest two-week increase since April. Measures of consumer confidence fell sharply in November, and real-time data from private sources shows the labor market is slowing or reversing.

Any reversal would be disappointing after months of economic progress. But that would hardly be surprising given the new wave of lockouts and trade restrictions that made further layoffs almost inevitable. In recent weeks, Chicago has imposed a new stay-at-home order, Los Angeles County has suspended outdoor dining, and Philadelphia has banned most private gatherings indoors. Several states have ended or restricted indoor dining. And even where authorities haven’t passed any new rules, many consumers are likely to voluntarily restrict their activity to avoid contracting the virus.

“The most obvious culprit for the increase in claims is the growing pandemic,” said Daniel Zhao, senior economist at career site Glassdoor. “It seems it was only a matter of time before it started showing up in the economic data.”

The latest data is not universally gloomy. The Commerce Department reported on Wednesday that orders for expensive products like machinery, a measure of business confidence, rose in October. New home sales have also jumped, as lower interest rates continue to push the housing market up. Households have $ 1 trillion more in savings than before the pandemic, money that could fuel consumer spending when vaccines become widely available and the threat of the virus subsides. And the stock market, that very imperfect barometer of the economy, has set new highs.

But for those people and industries most at risk, the outlook is bleak. In addition to the new round of trade restrictions, a new wave of school closures could push parents – and especially mothers – to withdraw from the workforce. A growing number of economists are predicting a “double dip” recession, in which economic activity contracts again early next year.

Unlike spring, families and businesses will have to weather the latest closures on their own. Federal programs that provided billions of dollars in support to small businesses and the unemployed expired over the summer, and efforts to revive them stalled in Congress. Many of the remaining programs expire at the end of the year.

Data released by the Commerce Department on Wednesday showed personal income fell 0.7% in October, with lower government assistance offsetting gains in wages and salaries. Consumer spending rose 0.5%, the smallest increase since the recovery started last spring.

“Part of the reason the recovery has worked so well is that there has been so much help for the businesses and workers affected, and now is really not the time to tear defeat from the jaws of victory, ”said Julia Pollak, labor economist at ZipRecruiter. Further help, she said, was needed to “prevent this temporary disruption from turning into permanent destruction.”

Both Democratic and Republican leaders have said they want to adopt a relief package before the end of the year. But the two sides remain far apart and the prospects for a quick deal look bleak.

Congressional aides and outside groups monitoring stimulus talks said this week they didn’t expect rising jobless claims to prompt Senate Republicans to agree to anything close to the 2-pack. trillions of dollars that Democrats have wanted for months.

Aid to President-elect Joseph R. Biden Jr. foresees the possibility of another contraction in the economy and has called on lawmakers to approve a stimulus deal ahead of his inauguration in January. A small group of House Democrats have pressured President Nancy Pelosi to accept a smaller deal in order to reach a compromise with Sen. Mitch McConnell of Kentucky, the majority leader.

The stakes are especially high for the nearly 14 million Americans who receive unemployment benefits through a pair of emergency programs that will expire next month.

Data released on Wednesday showed that in early November, around nine million people were enrolled in the Pandemic Unemployment Assistance Program, which covers freelancers, self-employed workers and others who are not. not eligible for regular state benefits. This program has been plagued by fraud and double-counting, and many economists believe the Department of Labor’s tally inflates the true total. Yet regardless of the measure, there are millions of people enrolled in the program who will lose their benefits when it expires.

An additional 4.5 million people are receiving payments under the Emergency Pandemic Unemployment Compensation Program, which adds 13 weeks of benefits to the 26 weeks available in most states. Enrollments have grown rapidly as more people reach the end of their regular state benefits.

Some of these people will be eligible for a separate federal top-up program that existed before the pandemic. But this program is not available in all states.

For workers, the timing could hardly be worse.

“We’re going to be in the dead of winter, virus cases are likely to explode and the holiday season is over,” said AnnElizabeth Konkel, economist at Careers Indeed. “It puts those who might drop out of these benefit programs in a really precarious situation.”

Adding to the risk: Federal rules to block evictions and allow borrowers to defer payments on mortgages and student loans also expire at the end of the year. The Trump administration could choose to extend them, but if they don’t, families could lose their only source of income and lose the protections that keep them at home.

“It’s kind of like hitting a giant brick wall,” said Elizabeth Pancotti, a policy researcher who co-authored a recent report on the cliff of benefits. “Not that there was a good time for all of these programs to end, but maybe all on the same day was not a good idea.”

Jim Tankersley contributed reporting.

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