Last week, the number of new applications for unemployment benefits in the United States surged—the largest increase in five months—although the overall trend continues to reflect a steadily slowing labor market.
According to the Labor Department, the unexpected rise in initial claims, which jumped by 22,000 to a seasonally adjusted 242,000 for the week ending February 22, was likely driven by severe snowstorms in many parts of the country and the inclusion of the Presidents’ Day holiday. Unadjusted claims fell slightly by 2,997 to 220,541, with notable declines in states like California, Kentucky, Texas, Washington, and Tennessee offsetting rises in Massachusetts, Rhode Island, and Illinois.
In a separate measure, the unemployment compensation for federal employees (UCFE) program reported that 614 people filed for benefits in the week ending February 15—only one more than the previous week.
Adding to the turbulence, Trump’s Department of Government Efficiency (DOGE) has been laying off probationary federal workers, mostly around February 14, as part of an unprecedented campaign to reduce federal spending. This move, which has led to significant layoffs among federal employees and contractors, has pushed initial claims in Washington, D.C. to a two-year high. Joseph Brusuelas, chief economist at RSM US, estimated that these firings could total between 200,000 and 300,000 federal full-time employees, with an additional 450,000 contractors losing their jobs.
Economists warn that the contraction in government spending and the loss of pay might trigger further private-sector job losses. Michele Evermore, a senior fellow at the National Academy of Social Insurance, commented that these layoffs are likely the largest in U.S. history and could lead to broader economic hardship.
Despite the increase in initial claims, the four-week moving average—a more stable indicator of labor market health—rose by only 8,500 to 224,000 last week, suggesting no significant shift in the underlying conditions.
Overall, historically low layoffs have helped keep the economic expansion on track, providing the Federal Reserve room to maintain current interest rates while monitoring the economic impact of the Trump administration’s fiscal, trade, and immigration policies, which many economists view as inflationary. Recent minutes from the Fed’s January 28-29 meeting revealed concerns about rising inflation due to Trump’s initial policy proposals. On Thursday, Trump doubled down on tariffs by announcing a 25% levy on goods from Canada and Mexico starting next week.
Progress toward the Fed’s 2% inflation target has stalled, with the Commerce Department’s Bureau of Economic Analysis revising the core Personal Consumption Expenditures (PCE) Price Index upward to 2.7% annualized in Q4 from the previously reported 2.5%, while Q4 economic growth slowed to 2.3% from 3.1% in Q3.
Meanwhile, stocks on Wall Street showed mixed performance, the dollar strengthened, and U.S. Treasury yields rose. The Fed recently held its overnight rate in the 4.25%-4.50% range after reducing rates by 100 basis points since September—following a cumulative hike of 5.25 percentage points in 2022 and 2023.
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Continuing claims, which reflect the number of people still receiving unemployment benefits after the first week, fell by 5,000 to a seasonally adjusted 1.862 million during the week ending February 15. These figures, along with the overall survey data showing an unemployment rate of 4.0% in January, indicate that while the labor market appears stable, concerns persist about job security in the event of further layoffs.
A recent Conference Board survey revealed that consumer confidence regarding job availability has dropped to a five-month low, reflecting growing anxiety over employment prospects. Meanwhile, a separate report from the Commerce Department’s Census Bureau indicated that orders for non-defense capital goods (excluding aircraft)—a proxy for business spending—surged by 0.8% in January after a modest 0.2% gain in December, though some economists suspect this may be a temporary pull-forward effect before demand subsides later in the year. Shannon Grein, an economist at Wells Fargo, commented that manufacturers, who source many inputs from abroad, might eventually reduce their orders as the initial rush wanes.
Overall, while state unemployment claims continue to signal no dramatic shift in labor market conditions, the broader economic environment remains cautious amid government spending cuts, layoffs, and tariff uncertainties.
