U.S. Weekly Jobless Claims Increase; Concerns on Fraudulent Filling

The number of Americans filing new claims for unemployment benefits unexpectedly rose last week, but the labor market is regaining its footing as an acceleration in the pace of vaccinations leads to more businesses reopening.

A new round of $1,400 stimulus payments, on the way to mostly lower- and middle-income households, was expected to boost spending at discount stores, at least in the coming weeks.

Economists polled by Reuters had forecast 700,000 applications in the latest week.Unemployment claims have dropped from a record 6.867 million in March 2020, 1 million people filed claims last week. Claims continue to be distorted by backlogs and fraudulent filing,Including a government-funded program for the self-employed, gig workers and others who do not qualify for the regular state programs.

Applications from laid-off workers rose 13,000 from the previous week, which was revised sharply higher, the Labor Department said Thursday. Before the virus erupted in the United States last March, weekly applications for unemployment benefits had never topped 700,000, even during the Great Recession of 2008-2009.

Fraudulent claims may be pushing up the totals. Last week, Ohio reported a huge increase in applications, and said it had set aside about half the increase for additional review out of concern over fraud.

Two federal unemployment aid programs — one that provides up to an extra 24 weeks of support and another that covers self-employed and gig workers — were extended until March 14 by a $900 billion rescue package that was enacted late last year.

U.S President Joe Biden is proposing to extend both programs through August as part of his $1.9 trillion package now before Congress. The legislation would also provide an additional $400 a week in federal jobless aid, on top of state benefits. That money would replace a $300-a-week benefit that was included in the relief package approved last year.

macroeconomic implications of Biden’s $1.9 trillion stimulus package

with the $1.9 trillion stimulus package, it is project that cumulative real GDP between 2020 and 2023 would end up close to its pre-pandemic projection; over the next two years households and businesses would make up some of the economic activity foregone during the pandemic. By late 2021, the economy would likely be operating above its maximum sustainable level.

That positive output gap would likely put upward pressure on inflation, which the Federal Reserve has said would be welcome. A risk worth noting is that the return of GDP back to its maximum sustainable level may create a difficult economic period after 2021.