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.
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 on Thursday. 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 an increase amid mass layoffs of probationary federal government workers, fired by tech billionaire Elon Musk’s Department of Government Efficiency, or DOGE.
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.
The federal government layoffs are not expected to show up in February’s employment report, which is scheduled for release 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 of economists showed. The unemployment rate is forecast unchanged at 4.0%.
(Reporting By Lucia Mutikani; Editing by Chizu Nomiyama)
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