The number of Americans filing new applications for unemployment benefits posted the largest increase in five months last week, but the underlying trend in claims remained consistent with a steadily slowing labor market.
The larger-than-expected rise in initial claims reported by the Labor Department on Thursday was likely the result of snowstorms in many parts of the country. The data also included the Presidents' Day holiday, which could have injected some volatility. There were no signs yet that mass layoffs of federal government employees were boosting claims, though that could change in the coming weeks as more workers are fired.
"Extreme winter weather was chiefly responsible for the pickup in initial claims last week," said Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics.
Initial claims for state unemployment benefits jumped 22,000 to a seasonally adjusted 242,000 for the week ended February 22. The increase was the biggest since last October.
Economists polled by Reuters had forecast 221,000 claims for the latest week. Unadjusted claims fell 2,997 to 220,541. There were steep declines in California, Kentucky, Texas, Washington state and Tennessee.
They more than offset an increase of 3,731 in filings in Massachusetts and a rise of 2,055 in Rhode Island. There was also a significant increase in applications in Illinois.
A separate unemployment compensation for federal employees (UCFE) program, which is reported with a one-week lag, showed 614 people filed for benefits during the week ending February 15, up only one from the previous week.
Tech billionaire Elon Musk's Department of Government Efficiency, or DOGE, - an entity created by Republican President Donald Trump - has been laying off probationary federal government workers, most of whom were fired around February 14.
More layoffs are coming as part of an unprecedented campaign by the Trump administration to slash spending and shrink the federal government. Employers with government contracts have also been affected by the spending cuts, boosting initial claims in Washington, D.C., to a two-year high.
"Our estimate currently implies a loss of federal full-time employees between 200,000 and 300,000 and another 450,000 contractors," said Joseph Brusuelas, chief economist at RSM US.
Economists have warned that the reduction of money flowing into the economy from spending cuts and the loss of pay could cause private-sector job losses.
"These firings likely add up to the biggest layoffs in the history of the United States," said Michele Evermore, a senior Fellow at the National Academy of Social Insurance. "Economic pain is contagious, so it is likely that the federal layoffs will cause more economic hardship."
For now, state unemployment claims continue to signal no material shift in labor market conditions.
The four-week moving average of claims, considered a better measure of labor market health as it irons out week-to-week volatility, increased 8,500 to 224,000 last week.
LAYOFFS STILL LOW
Historically low layoffs are keeping the economic expansion on track, giving the Federal Reserve room to keep interest rates unchanged as policymakers monitor the economic impact of the Trump administration's fiscal, trade and immigration policies, which are viewed as inflationary by economists.
Minutes of the U.S. central bank's January 28-29 policy meeting published last week showed policymakers were worried about higher inflation from Trump's initial policy proposals. Trump on Thursday doubled down on tariffs, saying a 25% levy on goods from Canada and Mexico would be imposed next week.
Progress lowering inflation to the Fed's 2% target has stalled, with a separate report from the Commerce Department's Bureau of Economic Analysis showing the Personal Consumption Expenditures Price Index, excluding food and energy, rose at an upwardly revised 2.7% annualized pace in the fourth quarter.
The so-called core PCE inflation was previously reported to have increased at a 2.5% rate. Economic growth in the fourth quarter was confirmed at a 2.3% rate, a slowdown from the 3.1% rate logged in the third quarter.
A column chart titled "US gross domestic product" that tracks the metric over the last year.
Stocks on Wall Street were mixed. The dollar gained versus a basket of currencies. U.S. Treasury yields rose.
The Fed left its benchmark overnight interest rate unchanged in the 4.25%-4.50% range last month, 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, fell 5,000 to a seasonally adjusted 1.862 million during the week ending February 15, the claims report showed.
The so-called continuing claims covered the period during which the government surveyed households for February's unemployment rate. Continuing claims were little changed between the January and February survey weeks. The unemployment rate was 4.0% in January.
Though the labor market remains healthy, households are growing anxious about their prospects of getting a job in the event of being laid off. A Conference Board survey on Tuesday showed the share of consumers who viewed jobs as being "plentiful" dropped to a five-month low in February.
A separate report from the Commerce Department's Census Bureau on Thursday showed non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, surged 0.8% in January after gaining 0.2% in December. Economists doubted the strength in the so-called core capital goods would be sustained, arguing that businesses likely rushed to place their orders before tariffs kicked in.
"Manufacturers source a lot of their inputs from abroad," said Shannon Grein, an economist at Wells Fargo. "To the extent this pickup in core capital goods orders does reflect a pull forward in demand, we should brace for some payback as that intention subsides mid-to-late in the year."
