The number of Americans filing new applications for unemployment benefits fell to a two-month low last week, suggesting labor market conditions remained stable in April, though uncertainty around tariffs is making businesses hesitant to boost hiring.
"The labor market remains resilient," said Michael Pearce, deputy chief U.S. economist at Oxford Economics. "We are most concerned about small businesses, which are responsible for a large share of total employment and job creation and are less able to withstand gyrations and uncertainty in tariff policy."
Initial claims for state unemployment benefits dropped 9,000 to a seasonally adjusted 215,000 for the week ended April 12, the lowest level since February, the Labor Department said. Economists polled by Reuters had forecast 225,000 claims for the latest week. There was still no sign yet that mass firings of federal government workers were impacting the labor market.
The claims data suggested companies had not yet responded with layoffs to Trump's April 2 "Liberation Day" tariff announcement, but the White House's trade policy has constantly shifted, which economists said made it difficult for businesses to plan ahead.
Trump has slapped duties on virtually all foreign goods, igniting a trade war with China, the biggest source of U.S. imports. The tariffs have stoked fears of high inflation and stagnation in economic growth. Trump sees tariffs as a tool to raise revenue to offset his promised tax cuts and to revive a long-declining U.S. industrial base.
Federal Reserve Chair Jerome Powell on Wednesday acknowledged the heightened uncertainty and signs the economy appeared to have slowed in the first quarter.
Speaking at an Economic Club of Chicago event, Powell said "we're always going to be aiming for maximum employment and price stability," but added "I do think we'll be moving away from those goals, probably for the balance of this year, and then, or at least, not making any progress."
Low layoffs have anchored the labor market. With business sentiment in the doldrums, economists are bracing for a rise in unemployment in the coming months. The claims data covered the period during which the government surveyed businesses for the nonfarm payrolls component of April's employment report.
Claims declined during the March and April survey weeks, suggesting a steady pace of job gains this month. The economy added 228,000 jobs in March while the unemployment rate rose to 4.2% from 4.1% in February.
Next week's data on the number of people receiving benefits after an initial week of aid, a proxy for hiring, could shed more light on the labor market's fortunes in April.
The so-called continuing claims increased 41,000 to a seasonally adjusted 1.885 million during the week ending April 5, the claims report showed. The elevated level of continuing claims indicates that some laid-off workers are finding it difficult to land new opportunities.
The dollar was higher against a basket of currencies. U.S. stocks fell.
CHAOTIC TARIFF POLICIES
A separate report from the Commerce Department's Census Bureau showed single-family housing starts, which account for the bulk of homebuilding, dropped 14.2% to a seasonally adjusted annual rate of 940,000 units in March, the lowest level since July. They decreased 9.7% year-on-year in March.
A National Association of Home Builders survey on Wednesday showed sentiment among single-family homebuilders remained depressed in April. The NAHB said the impact of import duties was already being felt with "the majority of builders reporting cost increases on building materials due to tariffs."
It said suppliers have on average raised their prices by 6.3%, meaning that builders estimated a typical cost effect from recent tariff actions at $10,900 per home. These increased costs have overshadowed a recent moderation in mortgage rates, driven by concerns over the economy's outlook.
There is also little incentive for builders to continue breaking ground on housing projects, with new housing inventory at levels last seen in late 2007.
"Even before all of the tariff news, housing demand was tepid and new home inventories were bloated," said Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets. "Thus, it would be far from shocking to see housing starts decline. Add to that the uncertainty regarding the economic outlook created by the chaotic tariff policies, and it seems likely that building activity will soften going forward."
Permits for future construction of single-family housing fell 2.0% to a rate of 978,000 units in March.
Starts for housing projects with five units or more were unchanged at a rate of 371,000 units.
Overall housing starts tumbled 11.4% to a rate of 1.324 million units. Economists polled by Reuters had forecast housing starts falling to a rate of 1.420 million units.
Multi-family building permits jumped 10.1% to a rate of 445,000 units. That lifted overall building permits by 1.6% to a pace of 1.482 million units last month.
Gross domestic product growth estimates for the first quarter are below a 0.5% annualized rate. The Atlanta Fed expects GDP adjusted for imports and exports of gold to contract at a 0.1% rate in the first quarter. A surge in imports as businesses front-loaded goods to avoid tariffs likely weighed on GDP. The economy grew at a 2.4% pace in the fourth quarter.
