Stimulus cheques from Washington boost US retail spending, but 576,000 file jobless claims
Sales across American malls, shopping streets and supermarkets rebounded sharply in March as more households got their Covid relief stimulus cheques from Washington and increased vaccinations allowed more social interaction in a boost to businesses.
Retail sales increased 9.8 per cent last month, the Commerce Department said this afternoon, smashing expectations from economists of a 5.9 per cent rise.
Many qualified households have received additional $1,400 cheques, which were part of the White House’s $1.9 trillion rescue package approved in early March. The bill also increased unemployment benefits with a temporary $300 boost until early September.
At the same time, spring temperatures and a rapidly improving public health situation has allowed more restaurants to offer dining services.
Excluding vehicles, petrol, building materials and food services, retail sales rose 6.9 per cent last month after a revised 3.4 per cent decrease in February. These so-called core retail sales correspond most closely with the consumer spending component of GDP.
Growth estimates for the first quarter are as high as a 9.8 per cent annualized rate. The economy grew at a 4.3 per cent pace in the fourth quarter. Growth is expected to top 7.0 per cent this year, which would be the fastest since 1984. It would follow a 3.5 per cent contraction last year, the worst performance in 74 years.
Half a million file jobless claims
However, a separate report from the Labor Department showed first-time applications for unemployment benefits remained elevated last week, that is probably not a true reflection of the job market’s health.
Initial claims for state unemployment benefits came in at a seasonally adjusted 576,000 for the week to 10 April compared to 769,000 in the prior week. Economists polled by Reuters had forecast 700,000 applications in the latest week.
Part of the elevation in claims is because of fraud. The enhancement of the unemployment benefit programmes, including the weekly subsidy, could also be encouraging some people to file for aid and others to not to seek work.
According to Michael Feroli, chief US economist at JP Morgan, an analysis of the Labor Department’s first payments data, which is published monthly and with a considerable lag, suggested aspirational filers are boosting jobless claims.
“Historically, about 45 per cent of initial claims resulted in a first payment of benefits,” said Feroli.
“Over the last few months, fewer than 25 per cent of initial claims generated a first payment of benefits. One reason may be that the $300 weekly bonus payments are encouraging more people to give filing a shot, the payoff from a successful claim is significantly greater than before the pandemic.”
While claims have dropped from a record 6.15m in early April 2020, they are well above their pre-pandemic level. In a healthy labor market, claims are normally in a 200,000 to 250,000 range.
The government reported this month that employers hired 916,000 workers in March, the most in seven months.
Still, employment remains 8.4m jobs below its peak in February 2020.