Applications for state U.S. unemployment benefits decreased last week following an unexpected jump, indicating the labor market’s gradual recovery is back on track as COVID-19 infections ease from a surge in the prior two months.

Initial jobless claims in regular state programs fell by 98,000 to 1.01 million in the week ended Aug. 22, Labor Department data showed Thursday. Continuing claims – the total number of Americans claiming ongoing unemployment assistance in those programs – also dropped in the week ended Aug. 15, though remained extremely elevated at 14.5 million.

The median estimate in a Bloomberg survey of economists called for 1 million initial claims in the latest week.

The report suggests the jobs market continues to gradually recover amid a pullback in new COVID-19 cases, with next week’s monthly report projected to show another 1.6 million net payroll gains in August. At the same time, claims remain far above pre-pandemic levels, and risks to further improvement include a drying-up of government support for businesses and lawmakers’ failure to to extend support for cash-strapped companies and jobless Americans.

“Even as businesses have reopened and jobs have returned, layoffs are ongoing reflecting interruptions to activity from virus containment that are likely resulting inpermanent closures and job losses,” Rubeela Farooqi, chief U.S. economist at High Frequency Economics, said in a note. “The risk of permanent damage to the labor market remains high which will slow the pace of recovery.”

Just this week, retailer Bed Bath & Beyond Inc. said it plans to eliminate 2,800 jobs, while American Airlines Group Inc. said it plans to cut 19,000 workers once federal payroll aid expires in October.

Meanwhile, after several months of gradual improvement, the trend in job postings pulled back for a second week, according to data as of Aug. 21 from Indeed.com.

A separate report Thursday showed the U.S. economy’s second-quarter contraction was slightly less steep than initially reported, a revision that offers little solace as the drop is still the worst since just after the Great Depression.

The latest jobless report’s continuing claims coincided with the reference period for the August jobs report. The figure dropped about 2.4 million compared with July’s reference week, supporting the idea that August payrolls likely registered a solid gain.

Even so, Farooqi said recent declines could also reflect recipients exhausting regular state benefits and moving to a federal program called Pandemic Emergency Unemployment Compensation.

In addition to applications for unemployment benefits in regular state programs, states reported 607,806 initial claims for Pandemic Unemployment Assistance in the week ended Aug. 22, up about 83,000 from the prior week. That’s the federal program extending unemployment benefits to those not typically eligible like the self-employed. Those figures aren’t seasonally adjusted.

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