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U.S. unemployment claims jump to nine-week high of 419,000 as automakers temporarily shut plants

The numbers: The number of people who applied for unemployment benefits in mid-July jumped to the highest level in two months, but the increase was concentrated in just a few states heavily engaged in automaking and likely doesn’t reflect any fresh faultlines in the U.S. economy.

Initial jobless claims surged by 51,000 to 419,000 in the seven days ended July 17, the government said Thursday.

The biggest increase took place in Michigan, where autoworkers are eligible for benefits when manufacturing plans are briefly shut down each summer to retool for the latest models. Kentucky and Texas, other big auto-manufacturing states, also reported large increases in new claims.

The surge in applications for benefits was well above Wall Street expectations. Economists polled by The Wall Street Journal had forecast 348,000 new claims.

An additional 110,257 applications for benefits were filed through a temporary federal relief program set up during the pandemic.

Read: I’ve set pay policies at big companies — here are 3 secrets to getting a raise

The fresh increase in new claims aside, the number of people applying for state or federal benefits has been slouching this year toward pre-pandemic levels. New claims ran in the low 200,000s before the viral outbreak.

Read: Why used-car prices are driving U.S. inflation higher — and why it won’t last

Big picture: The labor market is far from fully healed 16 months after the start of the pandemic. Millions of people who were employed before the viral outbreak remain out of work and many probably won’t return until the fall.

Just over half the U.S. states have cut off extra federal benefits in an effort to prod people to return to the workforce. There’s some evidence the approach has moved the needle, but not enough to alter the bigger picture.

A recent poll by Morning Consult estimates that as many as 1.8 million Americans are staying home because the benefits bring them enough money to get by for now.

As of early July, about 12.57 million people were receiving unemployment compensation. That’s the lowest amount since the month before the pandemic, when fewer than 2 million people were collecting unemployment benefits.

Read: The cost of living posts biggest increase since 2008 as inflation spreads

The details: New jobless claims jumped by 13,000 in Michigan, 10,000 in Texas and 9,000 in Kentucky. All three are among the biggest auto-manufacturing states in the country.

Each year automakers typically shut down their assembly lines for up to two weeks to reconfigure them to make the latest models of new cars.

What’s more, an ongoing global shortage of computer chip has forced them to occasional halt production. GM just announced it was halting production of pickup trucks because it doesn’t have enough chips.

The government always has difficulty adjusting new claims for seasonal swings in July because of the auto-plant shutdowns and the July 4 holiday — a problem compounded by the pandemic.

New claims fell in 31 other states, however, in a sign that fewer people are being laid off. Most companies are trying to add new workers, not get rid of them, with the economic recovery gathering steam.

The number of people already collecting state jobless benefits, meanwhile, fell by 29,000 to a seasonally adjusted 3.24 million. These so-called continuing claims are consistently falling to new pandemic lows.

Some 4.1 million people who have exhausted state compensation were also getting temporary federal benefits as of July 3, the latest data available. Yet the number has tumbled from almost 6 million in the middle of June, likely reflecting the cutoff of federal benefits.

Note to readers: A government review found the number of distinct individuals collecting benefits has been inflated by fraud and double counting.

What they are saying? “Don’t panic. The claims numbers continue to suffer from seasonal adjustment difficulties caused by shifts in the timing and extent of the automakers’ annual retooling shutdowns from year to year,” said chief economist Ian Shepherdson of Pantheon Macroeconomics.

“I do not worry that this reading signals a sudden weakening in labor demand,’ said chief economist Stephen Stanley of Amherst Pierpont Securities. ” In fact, I am quite confident that it does not.”

Market reaction: The Dow Jones Industrial Average
DJIA,
-0.08%

and S&P 500
SPX,
+0.03%

were fell slightly in Thursday trades.

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