Updates: Jobless Claims May Show Progress on Employment

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LiveUpdated April 1, 2021, 7:19 a.m. ETApril 1, 2021, 7:19 a.m. ET
The Forecast Salon in Birmingham, Ala. A pickup in business activity nationwide has fed hopes that workers' prospects are improving.
The Forecast Salon in Birmingham, Ala. A pickup in business activity nationwide has fed hopes that workers’ prospects are improving. Credit…Wes Frazer for The New York Times

A year after jobless claims first rocketed upward, they may finally be returning to earth.

Last week, the Labor Department reported that initial applications for unemployment benefits had fallen to their lowest levels of the pandemic. Economists cautioned against reading too much into the drop because the weekly data has been plagued by measurement issues and other quirks throughout the pandemic.

The latest data, being released on Thursday, could show whether the drop was more than a fluke. If claims don’t rebound much — or decline further — it would suggest that workers’ prospects are finally improving as the vaccine rollout accelerates and more states lift restrictions on business activity.

“We could actually finally see the jobless claims numbers come down because there’s enough job creation to offset the layoffs,” said Julia Pollak, a labor economist at the job site ZipRecruiter.

But Ms. Pollak cautioned that benefits applications would not return to normal overnight. Even as many companies resume normal operations, others are discovering that the pandemic has permanently disrupted their business model.

“There are still a lot of business closures and a lot of layoffs that have yet to happen,” she said. “The repercussions of this pandemic are still rippling through this economy.”

Shoppers in Berlin's Alexanderplatz. Germany and other countries have cut their value-added taxes to encourage consumer spending.
Shoppers in Berlin’s Alexanderplatz. Germany and other countries have cut their value-added taxes to encourage consumer spending.Credit…Lena Mucha for The New York Times

The European Central Bank’s chief economist argued on Thursday that fears of a big rise in inflation are overblown, a sign that the people who control interest rates in the eurozone are likely to keep them very low for some time to come.

The comments — by Philip Lane, an influential member of the central bank’s Governing Council whose job includes briefing other members on the economic outlook — are an attempt to calm bond investors who are nervous that the end of the pandemic will lead to a period of high inflation.

Fueling their fears, inflation in the eurozone rose to an annual rate of 1.3 percent in March from 0.9 percent in February, according to official data released on Wednesday, the fastest increase in prices in more than a year.

Market-based interest rates have been rising because investors worry that President Biden’s huge stimulus program will provoke a broad increase in prices for years to come. The interest rates that prevail on bond markets ripple through the financial system and can make mortgages and other types of borrowing more expensive, creating a drag on economic growth.

Mr. Lane said in a blog post on the central bank’s website on Thursday that despite big monthly swings in inflation during the last year, the average had been remarkably stable at an annual rate of about 1 percent. That is well below the European Central Bank’s target of 2 percent.

“The volatility in inflation over 2020 and 2021 can be attributed to a host of temporary factors that should not affect medium-term inflation dynamics,” Mr. Lane wrote.

That is another way of saying that the European Central Bank is not going to panic about short-lived fluctuations in inflation and put the brakes on the eurozone economy anytime soon.

On the contrary, Mr. Lane’s analysis suggests that the European Central Bank will continue trying to push inflation toward the 2 percent target. In March, the central bank said it would increase its purchases of government and corporate bonds to try to keep a lid on market-based interest rates.

Mr. Lane said it was no surprise to see “considerable volatility in inflation during the pandemic period.” He attributed the ups and downs to quirky factors that are not likely to recur.

Germany and some other countries cut their value-added taxes to encourage consumer spending, then raised them again later. The price of fuel fluctuated wildly. People spent almost nothing on travel, but increased spending on home exercise equipment or products that they needed to work from home. That affected the way inflation is calculated and made the annual rate look higher, Mr. Lane said.

“The medium-term outlook for inflation remains subdued,” he wrote, “and closing the gap to our inflation aim will set the agenda for the Governing Council in the coming years.”

Prince Abdulaziz bin Salman, the Saudi oil minister, has argued that increasing oil output too fast would be risky.
Prince Abdulaziz bin Salman, the Saudi oil minister, has argued that increasing oil output too fast would be risky.Credit…via Reuters

OPEC and its allies, including Russia, are expected to meet by videoconference Thursday to discuss whether to ease production curbs on oil as countries around the world try to expand from pandemic lockdowns.

Analysts say recent events will support the views of Prince Abdulaziz bin Salman, the Saudi oil minister, who has argued for caution in increasing supply, noting the risks of swamping the market. But other outcomes are possible at the meeting of the group known as OPEC Plus, including modest increases and even cuts in oil production,

France’s reimposition of a national lockdown, announced Wednesday, underlines persistent doubts about the pace of recovery from the pandemic, as have rising case numbers in the United States.

After modest increases when the Suez Canal was recently blocked by a cargo ship, oil prices were rising again on Thursday, with Brent crude about 1.6 percent higher, to $63.75 a barrel.

“All signs seemingly point to the group maintaining current production levels,” wrote Helima Croft, head of commodity strategy at RBC Capital Markets, an investment bank, in a note to clients on Wednesday.

Yet, pressure may also come to increase supply. Members of the OPEC Plus group are withholding an estimated 8 million barrels of a day, or about 9 percent of current global consumption. As the global economy recovers, it will become increasingly difficult for the Saudis to persuade others to restrain supplies.

A ChargePoint charging station in Berkeley, Calif. Shares in ChargePoint rose19 percent on Wednesday. President Biden's infrastructure plan encourages the use of electric vehicles.
A ChargePoint charging station in Berkeley, Calif. Shares in ChargePoint rose19 percent on Wednesday. President Biden’s infrastructure plan encourages the use of electric vehicles.Credit…John G Mabanglo/EPA, via Shutterstock

U.S. stock futures rose on Thursday and tech stocks were set to extend their rally as traders focused on optimism about the economic recovery. Shares in Europe and Asia were also higher before the Labor Department’s latest weekly report on initial applications for state unemployment benefits.

Bond yields pulled back from their recent 14-month high. The 10-year yield on U.S. Treasury notes fell 3 basis points, or 0.03 percentage point, to 1.71 percent.

Last week, jobless claims were at the lowest for the pandemic, but economists have warned against assuming this is the new trend because of measurement issues. New data on jobless claims will be released on Thursday, and on Friday, the Labor Department will publish its monthly jobs report for March.

Biden’s Infrastructure Plan

  • On Wednesday, President Biden laid out a $2 trillion infrastructure plan, which included money for a range of activities, including repairing roads and bridges, building affordable housing and caregiving facilities, and expanding access to broadband. It would be paid for by an increase in corporate taxes, undoing some of the cut by his predecessor, President Donald J. Trump.

  • The infrastructure plan also includes spending about $50 billion on the semiconductor industry, where a global shortage in chips has disrupted car manufacturing. Shares in Micron Technology, an Idaho-based chip maker, rose nearly 5 percent in premarket trading.

  • The plan includes $174 billion to encourage the manufacture and purchase of electric vehicles. Tesla shares rose 2.7 percent in premarket trading and ChargePoint Holdings, which has a large network of electric-vehicle charing stations, rose 9 percent premarket, extending a 19 percent increase on Wednesday.

  • Most European stock indexes were higher even as more lockdowns were announced in the region. In France, restrictions have been expanded to more regions and schools will close for several weeks. In Italy, business closures will extend until the end of April. But a series of reports published on Thursday showed manufacturing activity picking up in Europe.

  • Oil prices rose ahead of a meeting between the Organization of the Petroleum Exporting Countries and its allies, at which they are set to decide production quotas for May. Brent Crude, the European benchmark, rose 1.7 percent to $63.86 a barrel. West Texas Intermediate, the U.S. benchmark, climbed 2 percent to just above $60 a barrel.

  • QuantumScape, a California-based start-up working on a technology that could make batteries cheaper, said it had reached a technical requirement that would clear the way for a $100 million investment by Volkswagen. QuantumScape’s shares jumped 13 percent in premarket trading.

  • On Friday, markets will be closed in the United States, Europe and some other countries for Good Friday.

Taxpayers who received unemployment benefits last year — but who filed their federal tax returns before a new tax break became available — could receive an automatic refund as early as May, the Internal Revenue Service said on Wednesday.

The latest coronavirus relief legislation — signed into law on March 11, in the thick of tax season — made the first $10,200 of unemployment benefits tax-free in 2020 for people with modified adjusted incomes of less than $150,000. (Married taxpayers filing jointly can exclude up to $20,400.)

But some Americans had already filed their tax returns by March and have been waiting for official agency guidance. Millions of U.S. workers filed for unemployment last year, but the I.R.S. said it was still determining how many workers affected by the tax change had already filed their tax returns.

On Wednesday, the I.R.S. confirmed that it would automatically recalculate the correct amount of benefits subject to taxation — and any overpayment will be refunded or applied to any other outstanding taxes owed. The first refunds are expected to be issued in May and will continue into the summer.

The I.R.S. said it would begin processing the simpler returns first, or those eligible for up to $10,200 in excluded benefits, and then would turn to returns for joint filers and others with more complex returns.

There is no need for those affected to file an amended return unless the calculations make the taxpayer newly eligible for additional federal credits and deductions not already included on the original tax return, the agency said. Those taxpayers may want to review their state tax returns as well, the I.R.S. said.

People who still haven’t filed and expect to do so electronically can simply answer the questions asked by their online tax preparer, which will factor in the new tax break when they file. The agency provided an updated worksheet and additional guidance in March for taxpayers that prefer paper.

Microsoft's HoloLens headsets, demonstrated above in 2017, will equip soldiers with night vision, thermal vision and audio communication.
Microsoft’s HoloLens headsets, demonstrated above in 2017, will equip soldiers with night vision, thermal vision and audio communication.Credit…Elaine Thompson/Associated Press

Microsoft said Wednesday that it would begin producing more than 120,000 augmented reality headsets for Army soldiers under a contract that could be worth up to $21.9 billion.

The HoloLens headsets use a technology called the Integrated Visual Augmentation System, which will equip soldiers wearing them with night vision, thermal vision and audio communication. The devices also have sensors that help soldiers target opponents in battle.

The deal is likely to create waves inside Microsoft, where some employees have objected to working with the Pentagon. Employees at other big tech companies, like Google, have also rejected what they say is the weaponization of their technology.

But Microsoft has long courted Defense Department work, including a $10 billion contract to build a cloud-computing system. Amazon had been seen as a front-runner to win the contract, but the Defense Department chose Microsoft.

Amazon claimed that President Donald J. Trump had interfered in the process because of his feud with Jeff Bezos, Amazon’s chief executive and the owner of The Washington Post. A legal fight over the contract is still active.

Soldiers have tested the Microsoft headsets for two years, the company said. The Army said the devices would be used in combat and training.

Microsoft said its testing of the headsets had helped the Defense Department’s “efforts to modernize the U.S. military by taking advantage of advanced technology and new innovations not available to military.”

In a news release, the Army said the devices would “provide the improved situational awareness, target engagement and informed decision-making necessary” to overcome current and future adversaries.

In 2018, Microsoft won a $480 million bid to make prototypes of the headsets. The Army said Wednesday that the new contract to produce them on a larger scale was for five years, with the option to add up to five more years.

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