MANHATTAN (CN) — A welcome drop in new unemployment claims did not motivate Wall Street bulls, who seem increasingly concerned about a prolonged political fight over the next stimulus.
For the first time in five months, the total number of new jobless claims dipped Thursday under the 1 million mark. Only 963,000 new claims came in the week ending July 25, the lowest amount since states began imposing lockdowns due to the Covid-19 pandemic.
New unemployment claims had been steadily dropping until the week ending July 11, which marked a slight uptick to 1.5 million new claims. The last two weeks, however, they began decreasing again.
Labor Department statisticians have put the unemployment rate at 10.6%, with more than 28 million Americans still out of work as of July 25.
The fall in new claims is slightly better than the roughly 1 million new claims many analysts on Wall Street had anticipated. Several hard-hit states, including Texas and Florida, saw the largest decreases in new claims.
Investors were unmoved by the data, instead growing increasingly concerned by floundering on Capitol Hill. By the closing bell, the Dow Jones Industrial Average lost about 0.3%, while the S&P 500 — which closed at 3,380 points on Wednesday — fell 0.2%. The Nasdaq edged up slightly, gaining nearly 0.3% to hit 11,042 points.
“It has now been nearly two weeks since the $600 a week unemployment enhancement benefit ended, and thus far we haven’t seen a significantly negative effect in the weekly jobless claims numbers,” CMC Markets Chief Market Analyst Michael Hewson wrote. “Though this could change quickly in the coming weeks.”
Republicans and Democrats have deadlocked over a fourth stimulus package, with the former wanting to keep the package at no more than $1 trillion while the latter wants at least $2 trillion in additional benefits.
In addition to the $600 weekly plus-up for unemployment payments, which expired earlier this month, millions of Americans are covered by special unemployment programs not typically offered by states. As of July 25, more than 10.7 million Americans in 49 states claimed benefits under Pandemic Unemployment Assistance program.
Last weekend President Trump signed an executive order to pay out $400 in weekly additional unemployment benefits, but the order requires states to opt into the new program and pay some of the costs.
Calling the executive order “an unserious move of political theater,” Economic Policy Institute researcher Julia Wolfe said the drop in spending could cost the U.S. economy up to 2.6 million additional jobs over the next year.
Another concern is that the Paycheck Protection Program, designed as a lifeline for small businesses to keep employees on the payroll during the lockdown, officially ended last week despite about $130 billion in loans remaining unused.
The stalemate has left “an increasingly smaller margin of error for the U.S. economy to rebound strongly into the end of the year,” wrote Boris Schlossberg of BK Asset Management in an investor’s note. “The pressure point can become particularly acute in September, when many PPP schemes run out and small businesses may be forced to do another set of layoffs.”
Schlossberg noted that “the market remains steadfast in its belief that some sort of compromise will be reached” but that “the bulls are running out of ammunition and equities look ready for at least some sort of a correction if no action takes place in Washington.”
Economic consultant Joel Naroff also warns the market may have a rude awakening soon since most of the funds flowing into the economy came from government-support programs but, “because of gridlock in Washington, they are gone, reduced, or running out.”
He added: “Where consumers and businesses will get replacement funds to buy goods and services or pay workers is anyone’s guess, but investors have decided not to even think about that.”
Meanwhile, the coronavirus still rages. According to data compiled by Johns Hopkins University, more than 20 million have contracted Covid-19 worldwide, while 751,000 have died. In the United States, more than 5.2 million have been confirmed infected while nearly 167,000 have died.
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