The number of Americans filing new applications for unemployment benefits increased more than expected last week, but that likely does not signal a material shift in labor market conditions.
Initial claims for state unemployment benefits jumped 22,000 to a seasonally adjusted 242,000 for the week ended February 22, the Labor Department said on Thursday. Economists polled by Reuters had forecast 221,000 claims for the latest week.
Seasonal adjustment factors, the model that the government uses to strip out seasonal fluctuations from the data, tend to bias the claims data higher around this time of the year.
A separate unemployment compensation for federal employees (UCFE) program, which is reported with a one-week lag, showed no impact yet from mass layoffs of probationary federal government workers, most of whom were fired around February 14 by billionaire Elon Musk's Department of Government Efficiency, or DOGE - an entity created by Republican President Donald Trump.
The layoffs, which are part of efforts by the Trump administration to slash spending and shrink the federal government, have also affected employers with government contracts. Economists have warned that the reduction of money flowing in the economy from the loss of pay checks and spending cuts could cause private-sector job losses.
"These firings likely add up to the biggest layoff in the history of the United States," said Michele Evermore, a senior Fellow at the National Academy of Social Insurance. "Economic pain is contagious so it is likely that the federal layoffs will cause more economic hardship."
Evermore, a former deputy director for policy in the Labor Department's Office of Unemployment Insurance Modernization, cautioned that states did not have the administrative apparatus or technology to quickly pay benefits.
For now, state unemployment claims continue to signal no material shift in labor market conditions. Historically low layoffs are keeping the economic expansion on track, giving the Federal Reserve room to keep interest rates unchanged as policymakers monitor the economic impact of the Trump administration's fiscal, trade and immigration policies, viewed as inflationary by economists.
Minutes of the U.S. central bank's January 28-29 policy meeting published last week showed policymakers worried about higher inflation from Trump's initial policy proposals.
The Fed left its benchmark overnight interest rate unchanged in the 4.25%-4.50% range last month, 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, fell 5,000 to a seasonally adjusted 1.862 million during the week ending February 15, the claims report showed.
The so-called continuing claims covered the period during which the government surveyed households for February's unemployment rate. The unemployment rate was at 4.0% in January.
Though the labor market remains healthy, households are growing a bit anxious about their prospects of getting a job in the event of being laid off.
