WASHINGTON, March 6 (Reuters) – The number of Americans filing new applications for unemployment benefits fell more than expected last week, suggesting that the labor market remained stable in February, though turbulence lies ahead from tariffs on imports and deep government spending cuts.
That was flagged by other data on Thursday showing layoffs announced by U.S.-based employers jumped in February to levels not seen since the last two recessions amid mass federal government job cuts, canceled contracts and fears of trade wars.
“Evidence is mounting that elevated uncertainty about the outlook for federal policies and still-tight monetary policy is pushing redundancies higher,” said Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics.
Initial claims for state unemployment benefits dropped 21,000 to a seasonally adjusted 221,000 for the week ended March 1, the Labor Department said. Economists polled by Reuters had forecast 235,000 claims for the latest week.
The decline reversed the prior week’s surge, which had lifted claims to a two-month high and was blamed on snowstorms and difficulties adjusting the data for seasonal fluctuations around the Presidents Day holiday.
A separate unemployment compensation for federal employees (UCFE) program, which is reported with a one-week lag, showed applications rising to a four-year high of 1,634 from only 614 during the week ending February 15.
Tech billionaire Elon Musk’s Department of Government Efficiency, or DOGE, has fired probationary federal government workers. President Donald Trump has described the federal government as bloated and wasteful.
Global outplacement firm Challenger, Gray & Christmas said it had tracked 62,242 announced job cuts by the federal government from 17 different agencies in February. Most of the layoffs have been in Washington D.C., which has lost 61,795 jobs so far this year compared to only 60 in 2024.
Contractors have also been caught in the DOGE crossfire, extending the job losses to the private sector.
Challenger said the “DOGE impact” was blamed for 63,583 of the announced 172,017 layoffs last month.
For now, the overall labor market continues to plod along.
The Federal Reserve’s “Beige Book” report on Wednesday described employment as having “nudged slightly higher on balance” since mid-January. Labor market stability is critical to the U.S. central bank’s ability to keep interest rates unchanged while policymakers monitor the economic impact of tariffs and an immigration crackdown.
The Fed left its benchmark overnight interest rate unchanged in the 4.25%-4.50% range in January, having reduced it by 100 basis points since September, when it embarked on its policy easing cycle. The policy rate was hiked by 5.25 percentage points in 2022 and 2023 to tame inflation.
The number of people receiving benefits after an initial week of aid, a proxy for hiring, advanced 42,000 to a seasonally adjusted 1.897 million during the week ending February 22, the claims report showed.
Stocks on Wall Street traded lower. The dollar slipped against a basket of currencies. U.S. Treasury yields rose.
RECORD HIGH TRADE DEFICIT
The federal government layoffs are not expected to show up in February’s employment report, due on Friday, as the layoffs happened outside the survey week.
But the hiring and funding freezes could have an impact on government and contractor employment.
Nonfarm payrolls likely increased by 160,000 jobs after rising 143,000 in January, a Reuters survey showed. The unemployment rate is forecast unchanged at 4.0%.
A third report from the Commerce Department’s Bureau of Economic Analysis showed the trade deficit widened 34.0% to an all-time high of $131.4 billion in January as businesses rushed to bring in merchandise ahead of import duties.
The percentage change was the largest since March 2015 and put trade on track to subtract from gross domestic product in the first quarter. Trump this week slapped a new 25% tariff on imports from Mexico and Canada and doubled duties on Chinese goods to 20%, triggering a trade war.
The goods trade deficit with Canada hit a record high in January. The gap widened further with China and rose slightly with Mexico. On Thursday, Trump said Mexico won’t be required to pay tariffs on any goods that fall under the United States-Mexico-Canada Agreement on trade until April 2, as the administration’s trade policy continues to evolve.
Imports soared 10.0%, the most since July 2020, to $401.2 billion. Goods imports increased a record 12.3% to an all-time high of $329.5 billion.
They were driven by a $23.1 billion increase in imports of industrial supplies and materials, mostly reflecting finished metal shapes, probably gold.
There were large increases in consumer goods imports like pharmaceutical preparations, cell phones and other household goods. Imports of capital goods including computers, computer accessories and telecommunications equipment also rose. Imports of services climbed $0.4 billion to $71.7 billion.
Exports rose 1.2% to $269.8 billion. Goods exports increased 1.6% to $172.8 billion, boosted by capital goods like civilian aircraft and engines as well as semiconductors and computers. Consumer goods also rose, driven by pharmaceutical preparations and jewelry. But exports of other goods dropped $1.3 billion.
Food exports fell $1.0 billion amid a decline in soybeans. Exports of services increased $0.6 billion to $97.0 billion.
The inflation-adjusted goods trade deficit shot up 27.5% to a record $142.9 billion. This deterioration and decline in consumer spending in January have raised the risk of a contraction in GDP in the first quarter.
But some economists still expect moderate growth, arguing that gold accounted for much of the surge in imports.
Mining.com reported in January traders in London were rushing to ship gold to the U.S. to avoid tariff risks and capture premium prices. Gold imports, not intended for official reserve purposes, are excluded from national accounts.
The Atlanta Federal Reserve is currently forecasting GDP declining at a 2.8% annualized rate this quarter. The economy grew at a 2.3% rate in the October-December quarter.
“Trade will very likely stay in the spotlight this year,” said Oren Klachkin, financial markets economist at Nationwide.