By Lucia Mutikani
WASHINGTON (Reuters) – The number of Americans filing new applications for jobless benefits increased more than expected last week and the unemployment rate appeared to have picked up in May, suggesting layoffs were rising as tariffs cloud the economic outlook.
The report from the Labor Department on Thursday showed a surge in applications in Michigan last week, the nation’s motor vehicle assembly hub. The number of people collecting unemployment checks in mid-May was the largest in 3-1/2 years. The outlook for the economy is dimming with other data showing a sharp decline in corporate profits in the first quarter.
A U.S. trade court on Wednesday blocked most of Trump’s tariffs from going into effect in a sweeping ruling that the president overstepped his authority. Economists said the ruling, while it offered some relief, had added another layer of uncertainty over the economy.
“This is a sign that cracks are starting to form in the economy and that the outlook is deteriorating,” said Christopher Rupkey, chief economist at FWDBONDS. “There is nothing great about today’s jobless claims data and the jump in layoffs may be a harbinger of worse things to come.”
Initial claims for state unemployment benefits rose 14,000 to a seasonally adjusted 240,000 for the week ended May 24, the Labor Department said. Economists polled by Reuters had forecast 230,000 claims for the latest week.
Unadjusted claims increased 10,742 to 212,506 last week, lifted by a 3,329 jump in filings in Michigan. There were also notable increases in applications in Nebraska and California.
Despite the rise in claims, worker hoarding by employers following difficulties finding labor during and after the COVID-19 pandemic continues to underpin the jobs market.
Nonetheless, there has been an uptick in layoffs because of economic uncertainty as Trump’s aggressive trade policy makes it challenging for businesses to plan ahead.
A report from the Bank of America Institute noted a sharp rise in higher-income households receiving unemployment benefits between February and April compared to the same period last year. Its analysis of Bank of America deposit accounts also showed notable rises among lower-income as well as middle-income households in April from the same period a year ago.
Economists expect claims in June to break above their 205,000-243,000 range for this year, mostly driven by difficulties adjusting the data for seasonal fluctuations, following a similar pattern in recent years.
Minutes of the Federal Reserve’s May 6-7 policy meeting published on Wednesday showed while policymakers continued to view labor market conditions as broadly in balance, they “assessed that there was a risk that the labor market would weaken in coming months.”
They noted that there was “considerable uncertainty” over the job market’s outlook, adding “outcomes would depend importantly on the evolution of trade policy as well as other government policies.”
The U.S. central bank has kept its benchmark overnight interest rate in the 4.25%-4.50% range since December as officials struggle to estimate the impact of Trump’s tariffs, which have raised the prospect of higher inflation and slower economic growth this year.
U.S. stocks opened higher. The dollar eased against a basket of currencies after a brief rally. U.S. Treasury yields fell.
SWELLING UNEMPLOYMENT ROLLS
The number of people receiving benefits after an initial week of aid, a proxy for hiring, increased 26,000 to a seasonally adjusted 1.919 million during the week ending May 17, the claims report showed. The elevated so-called continuing claims reflect companies’ hesitance to increase headcount because of the economic uncertainty.
Continuing claims covered the period during which the government surveyed households for May’s unemployment rate. They increased between the April and May survey periods, suggesting an uptick in the unemployment rate this month. The jobless rate was at 4.2% in April.
Many people who have lost their jobs are experiencing long spells of unemployment. The median duration of unemployment jumped to 10.4 weeks in April from 9.8 weeks in March.
With profits under pressure, there is probably little incentive for businesses to boost hiring. Mass layoffs are, however, unlikely with a Conference Board survey of chief executive officers released on Thursday showing most captains of business anticipated no change in the size of their workforce over the next year even as about 83% said they expected a recession in the next 12-18 months.
Profits from current production with inventory valuation and capital consumption adjustments dropped $118.1 billion in the first quarter, the Commerce Department’s Bureau of Economic Analysis (BEA) said in a separate report. Profits surged $204.7 billion in the October-December quarter.
Companies ranging from airlines and retailers to motor vehicle manufacturers have either withdrawn or refrained from giving financial guidance for 2025, citing the uncertainty caused by the on-again and off-again nature of some duties.
Businesses front-loaded imports and households engaged in pre-emptive buying of goods last quarter to avoid higher costs, making it difficult to get a clear picture of the economy.
The deluge of imports sent gross domestic product declining at a 0.2% annualized rate in the January-March quarter, the BEA said in its second estimate of GDP. The economy was initially estimated to have contracted at a 0.3% pace. It grew at a 2.4% rate in the fourth quarter.
Other alternative measures of growth, gross domestic income and gross domestic output also showed the economy contracting at a 0.2% pace in the first quarter.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci)
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