By Lucia Mutikani
WASHINGTON (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.
Applications surged in the prior week amid snowstorms in many parts of the country 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 on Thursday it had tracked 62,242 announced job cuts by the federal government from 17 different agencies in February. Most of the federal 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, including contractors.
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.
U.S. stocks were 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 on Thursday showed a surge in goods imports in January as businesses rushed to bring in merchandise ahead of import duties, driving the trade deficit to a record high and putting trade on course to subtract from gross domestic product in the first quarter.
The trade gap surged 34.0% to an all-time high of $131.4 billion, the Commerce Department’s Bureau of Economic Analysis (BEA) said. The percentage change was the largest since March 2015. 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.
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.
Consumer goods imports rose $6.0 billion, boosted by pharmaceutical preparations, cell phones and other household goods. Imports of capital goods increased $4.6 billion amid rises in computers, computer accessories and telecommunications equipment. 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 a $4.2 billion rise in capital goods that reflected civilian aircraft, semiconductors, computers and civilian aircraft engines. Consumer goods exports increased $1.7 billion, driven by pharmaceutical preparations and jewelry. But exports of other goods dropped $1.3 billion.
Food exports decreased $1.0 billion, pulled down by a $0.8 billion drop in soybeans. Exports of services increased $0.6 billion to $97.0 billion.
The deterioration in the trade deficit and drop 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.
The gold imports were seen related to fears of tariffs on the precious metal.
"Most gold imports into the U.S. are unrelated to U.S. production or consumption and instead fluctuate based on demand from gold market participants, so the BEA excludes them altogether from the national accounts," Goldman Sachs said in a note. 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.