Jobless claims fell to a new pandemic low as businesses hold on to workers despite the surging Delta variant.

       Initial jobless claims fell by 14,000 to 340,000 in the week ended Aug. 28, the Labor Department said Thursday. That was the lowest level since the pandemic took hold in the U.S. in March 2020. The four-week moving average of claims, which smooths week-to-week volatility, fell to 355,000, also a pandemic low.

       After briefly exceeding 400,000 in mid-July, claims have been trending near the lowest level since the pandemic began. That shows a rising number of cases and hospitalizations tied to the Delta variant of Covid-19 haven’t translated into increased layoffs. There are signs that the variant has dented consumer confidence and slowed spending growth, but many employers also report difficulty filling job openings, which touched record highs this summer, and may be reluctant to let workers go.

       “The Delta variant is having some impact on economic activity, but positives still outweigh the negatives," said Gus Faucher, chief economist at PNC Financial Services Group. He added that many households increased savings thanks to government stimulus payments and that more than half of U.S. adults are vaccinated. “The labor market continues to recover strongly, and we’ve seen significant improvement, particularly in recent months," he said.

       Economists estimate that US employers added 720,000 jobs to payrolls in August—a modest deceleration from July but the third straight month of robust gains after the pace of hiring cooled in the winter and spring. The Labor Department will release the August jobs report Friday.

       The recent level of initial jobless claims is well below that during the spring of 2020 when millions of Americans sought assistance each week, but remains above pre-pandemic levels. In 2019, an average of 218,000 claims were made weekly.

       Other readings similarly show that the labor market hasn’t fully recovered from the pandemic downturn. As of July, there were 5.7 million fewer jobs in the U.S. than in February 2020, before the pandemic took hold in the U.S. Within that span, the number of people in the labor force—meaning they were working or seeking work—fell by 3.1 million.

       Whether those workers return, and how fast, will influence the pace of the recovery. Some dropped out because of fear of contracting the virus or because a lack of child care and could potentially return. Others retired or made lifestyle changes and don’t intend to seek work again.

       In early August, about 12 million claims were made for continued unemployment benefits, a proxy for the number of people on jobless rolls. The figure is less than half the level of a year earlier but well above the about two million each week before the pandemic.

       Nearly nine million of those benefits came through temporary federal pandemic programs that aid those not typically eligible, like gig and self-employed workers, and those who exhausted benefits via regular state programs, typically capped at 6 months or less.

       Those two programs are set to expire Monday, along with a $300 weekly enhancement to benefits paid under all programs. About half of the states have already acted to curtail all or part of the pandemic unemployment benefits. Federal officials said the $300 enhancement must end but said states had the option of using emerging funds sent from the federal government to extend other pandemic-related unemployment benefits.

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       The large number of Americans receiving ongoing unemployment benefits and the smaller workforce suggest that strong hiring and lower initial claims are masking the reality that millions are experiencing long-term joblessness. And those people are disproportionately Black and Latino women, said Michelle Holder, a Ph.D. labor economist at John Jay College in New York.

       The Delta variant could increase hesitancy to take an in-person service job, such as at a restaurant or store, especially in communities where vaccination rates are relatively low, she said. The variant also erodes some parents’ confidence that schools will remain in session all year.

       “The pandemic is still having a noticeable, negative impact on the labor market," Dr. Holder said.

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