US jobless claims dropped last week, but economists warn that sharp government spending cuts and the escalating trade war pose a risk to labor market stability. Initial claims for unemployment benefits fell 2,000 to 220,000, below forecasted levels.
The decline in claims comes after spiking in late February due to winter storms and data adjustments around the Presidents Day holiday. However, the labor market remains strong, but policies by President Trump’s administration pose a downside risk.
Thousand of federal government workers have been fired by the Department of Government Efficiency, an entity created by Trump to reduce the government size. The layoffs have not yet significantly affected official labor market data, but contractors have seen impacts due to spending cuts.
The number of people receiving benefits decreased 27,000 to 1.870 million, a proxy for hiring. Policy uncertainty is eroding business confidence and making companies hesitant to increase headcount. The Federal Reserve is expected to keep its benchmark interest rate in the 4.25%-4.50% range, but financial markets expect it to resume cutting borrowing costs in June.
The escalation of trade war and government spending cuts threaten labor market stability, despite the recent decline in jobless claims.
Source: https://www.reuters.com/markets/us/us-weekly-jobless-claims-fall-amid-labor-market-stability-2025-03-13