Labor Market Remains Stable, But Economic Risks Mount
The number of Americans filing new applications for unemployment benefits rose slightly last week, signaling a stable labor market even as trade tensions and deep government spending cuts cloud the economic outlook.
Initial claims for state unemployment benefits increased by 2,000 to a seasonally adjusted 223,000 for the week ending March 15, according to the Labor Department. This figure was in line with economists’ expectations, which had forecast 224,000 claims.
Despite relatively low layoffs, more people are staying on jobless rolls longer than last year, indicating a cooling job market.
Fed Holds Rates Amid Uncertainty
The Federal Reserve on Wednesday left its benchmark interest rate in the 4.25%-4.50% range, reflecting the uncertainty surrounding the economy. Fed officials, however, reiterated their expectation of two rate cuts by the end of the year.
“The data continue to tell a story of relatively few private-sector layoffs but limited employment opportunities for those who are unemployed,” said Nancy Vanden Houten, lead U.S. economist at Oxford Economics.
Government Job Losses Complicate Picture
A separate measure of jobless claims for federal employees (UCFE) fell by 514 to 1,066, despite mass firings by the Trump administration as part of its push to shrink the government.
However, analysts noted that the rapid layoffs under Elon Musk’s Department of Government Efficiency may be preventing some workers from filing claims due to administrative delays.
“The chaotic nature of the terminations has jerked federal workers through firings, reinstatements, and in-between statuses like ‘administrative leave,'” said Andrew Stettner, a senior fellow at the Century Foundation.
Government filings this week acknowledged that nearly 25,000 recently hired workers had been terminated. A judge ruled these terminations were likely illegal, leading to their reinstatement—though many remain on administrative leave.
Trade War and Business Sentiment
Policy uncertainty, particularly around President Donald Trump’s tariffs, has weakened business sentiment. Analysts say these trade policies make it harder for companies to plan for future hiring.
A report from the Bank of America Institute showed that small business spending was slowing, which could ultimately impact job creation. The report noted that a shift in capital expenditures could hamper new business formation, a key driver of employment growth.
Leading Economic Index Falls Again
A separate report from the Conference Board showed its Leading Economic Index fell 0.3% in February after a 0.2% decline in January. Though the index has previously predicted recessions that never materialized, economists say the drop highlights growing risks.
“Without a doubt, the economy started showing signs of a slowdown a while ago, and this metric reminds investors of the fragility of business conditions,” said Jeffrey Roach, chief economist at LPL Financial.
Continuing Claims Near Three-Year High
The number of Americans receiving benefits after an initial jobless claim, known as continued claims, rose by 33,000 to 1.892 million for the week ending March 8. This figure remains near a three-year high, signaling difficulties in finding new jobs.
Notably, continued claims rose in Washington, D.C., Maryland, and Virginia, likely reflecting layoffs among government contractors.
Unemployment Forecasts Edge Higher
The Federal Reserve revised its forecast for the U.S. unemployment rate, now expecting it to rise to 4.4% in 2025, slightly higher than its previous 4.3% estimate.
Housing Market Remains Volatile
Meanwhile, a separate report from the National Association of Realtors showed that existing home sales unexpectedly rose 4.2% in February. Despite the rebound, economists caution that consumer uncertainty and high mortgage rates could temper future demand.
“Transactions will recover meaningfully only when new mortgage rates get much closer to the average rate of the stock, currently just above 4%,” said Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics.
