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As Congress debates new aid, the job market teeters

Rising unemployment claims raise the stakes as lawmakers battle over the next rescue package

Treasury Secretary Steven Mnuchin said the Republic rescue package will cut federal jobless benefits.Win McNamee/Getty

Employers are hiring, but layoffs continue at an alarming rate. Congress may end or substantially reduce a crucial lifeline — an extra $600 a week in jobless pay — as soon as this weekend, a move that would leave at least 25 million unemployed Americans with far less money to get by.

If you are confused about what’s happening in the roiling mess we call a job market, join the club.

New claims for unemployment benefits rose last week to 1.4 million, the first increase since March, the US Department of Labor said Thursday. But the tally of everyone receiving state jobless benefits on a continuing basis (which is reported with a one-week lag) fell by more than a million to 16.2 million in the week ended July 11.


Meanwhile, Treasury Secretary Steven Mnuchin said enhanced jobless pay from the federal government may be extended, but at a much lower amount, in the stimulus package that Republicans are hammering out now.

“We want to make sure that the people who are out there that can’t find jobs do get a reasonable wage replacement. So it will be based on approximately 70 percent wage replacement,” rather than the $600 flat rate, Mnuchin told CNBC on Thursday.

Here are four key points to keep in mind as negotiations grind on in Washington on how best to keep the economy afloat while the coronavirus continues to spread quickly in many parts of the country.

Without an agreement in Congress, the federal government will soon stop bolstering unemployment checks.

That’s because the program, known as Federal Pandemic Unemployment Compensation, is set to expire at the end of the month. And because of the way unemployment checks are issued in Massachusetts, next week would be the last time federal money would be included for recipients here.


Democratic lawmakers want to extend the $600 payment through the end of the year, arguing that it has been a lifesaver for millions of struggling families. Ending the program would take an estimated $15 billion a week out of Americans’ pockets, slowing an already fragile economy dependent on consumer spending.

“We’ve been lucky to avoid far worse economic damage than we have seen,” said Andrew Stettner, an unemployment expert at the Century Foundation. The jobless bonus, combined with $1,200 per-person stimulus checks and the Paycheck Protection Program for businesses, has “kept household spending at decent levels.”

Initially, many Republicans preferred to end the extra payment completely, saying too many people are getting more money for being jobless than they did by working. In other words, the income replacement rate exceeds 100 percent.

But with the surge in coronavirus cases over the past month, there is a growing consensus around either reducing the flat rate, perhaps to somewhere between $300 and $400 a week, or making the payment a percentage of the recipient’s previous income.

With the quirks in how unemployment benefits are reported, it’s impossible to know exactly how many people would be affected by any change. In Massachusetts, about 950,00 residents were getting checks two weeks ago, but there is likely some double-counting between state and federal programs.

Nationally, more than 31 million people were on unemployment, according to the Labor Department. But Stettner said that after double-counting and other anomalies are factored out, about 25 million people, or about 15 percent of the pre-pandemic workforce, would lose the $600 a week.


The economy is at a pivotal moment.

Employers resumed hiring in May and June, adding 7.5 million jobs. Consumer spending rebounded. But with the pandemic out of control, those gains could be reversed.

The June jobs report was a snapshot taken in the middle of that month. Since then, new jobless claims across the country have exceeded 1 million a week. Continuing claims have averaged more than 17 million a week — and that’s not including those receiving payments under a federal program for gig workers, independent contractors, and others who had previously been ineligible.

“There is an incredible amount of churn in the labor market,” said Luke Tilley, chief economist at Wilmington Trust. “Millions of people are being unemployed, and millions more are moving into jobs each month. . . . The massive rehiring of people in May and June is masking the permanent job loss that is going on almost in the background.”

Tilley and other economists are focusing on data that are released more frequently than government reports, to get a feel for where the economy is headed. Small-business records tracked by Homebase show the average weekly increases in payrolls dropping below zero from more than 10 percent in late April and early May, according to calculations by Wilmington Trust.

Consumer spending and the number of small businesses that are open have also shown recent declines, according to data compiled by Opportunity Insights, a research project at Harvard.


Such data point to “a possible decline in employment in July,” Tilley said.

Peter Ireland, an economist at Boston College, warns about putting too much credence in reports covering a single week or even month.

“Now, more than ever, the week-to-week and month-to-month official statistics are error-ridden and difficult to interpret,” he said, noting that the Labor Department is having trouble accurately classifying who is out of a job and who has left the labor market altogether. “Instead, what I’d look at are clearer trends over longer periods.”

Massachusetts is climbing out of a big hole.

The state lost nearly 434,000 jobs, or 12 percent of the total, in March through June, compared with an 8 percent drop nationally. At 17.4 percent, our jobless rate is the highest in the country.

Massachusetts and the rest of the Northeast will take the longest to return to pre-pandemic employment levels, according to forecast released Thursday by IHS Markit.

“The region is taking a measured reopening approach and its regional economy is more mature and historically slow growing,” Karl Kuykendall, the firm’s associate director of regional economics, wrote in its report.

A lot is riding on the next federal stimulus package.

Congressional Democrats want to go big: $3 trillion, including an extension of enhanced jobless benefits, $1 trillion for state and local governments, a second round of stimulus checks, a 15 percent increase in the maximum benefit under the SNAP food stamps program, $175 billion in housing assistance, and $200 billion in hazard pay for essential workers.


Republicans want to keep the bill to $1 trillion. They, too, endorse stimulus checks and some federal jobless benefits, but oppose most everything else the Democrats have proposed.

The GOP argues the economy is on the mend and that its package is enough to keep it moving forward. Democrats argue the recovery is losing steam and more stimulus is needed.

After studying a range of economic and health data, Indivar Dutta-Gupta, co-executive director of the Georgetown Center on Poverty and Inequality, concludes that there has been “no improvement on balance, and possibly some deterioration” in the job market and economy since passage of the $2.2 trillion CARES Act rescue plan in March.

“Workers are clearly exiting the labor force altogether. . . . State and local governments have just begun deep cuts that will offset a large share of the stimulus passed by Congress to date,” he said.

“A very large and well-designed additional relief or stimulus bill now could make all the difference right now.”

Larry Edelman can be reached at larry.edelman@globe.com. Follow him on Twitter @GlobeNewsEd.