Jobless claims rise as tariffs and layoffs weigh on US labour market

Applications for US jobless benefits rose unexpectedly last week, signalling potential cracks in the labour market as economic uncertainty, driven by trade policies and slow growth, starts to take a toll.

According to data released on May 29 by the US Department of Labor, the number of Americans filing new claims for unemployment benefits increased by 14,000, reaching a seasonally adjusted total of 240,000 for the week ending May 24. This surge is slightly higher than economists' expectations of 230,000 claims.

The data also showed that the number of people receiving unemployment benefits rose by 26,000 to 1.92 million in mid-May, marking the largest increase in this figure since November 2021. These developments suggest that layoffs are rising, potentially signalling the start of a broader weakening in the labour market.

Impact of economic uncertainty and trade policy

The uptick in jobless claims coincides with growing concerns over the state of the US economy. The economy of the United States contracted at a 0.2 per cent annualised rate in the first quarter of 2025, primarily due to a sharp increase in imports.

Companies rushed to bring in goods before President Donald Trump’s sweeping tariffs on foreign imports came into effect, leading to a temporary surge in trade activity and distorting growth figures.

At the same time, corporate profits, which had already been under pressure, took a significant hit. Profits from current production dropped by $118.1 billion in the first quarter, according to a separate report from the Bureau of Economic Analysis. The overall economic slowdown has been further exacerbated by Trump’s tariffs, which continue to cloud the economic outlook.

The recent US Trade Court ruling blocked most of the tariffs from going into effect, which was soon followed by the imposition of a stay on the order, and has added yet another layer of uncertainty.

Despite the challenges, the labour market had remained relatively strong until now. Employers had been reluctant to lay off workers, partly because of the difficulty in finding labour during the COVID-19 pandemic and its aftermath. However, as the trade war intensifies and profits decline, businesses are becoming increasingly cautious, leading to layoffs in some sectors.

The rise in both initial and continuing claims raises the possibility of an uptick in the unemployment rate, which stood at 4.2 per cent in April. Economists are particularly concerned that this may signal a longer-lasting trend.

The Federal Reserve has also expressed concern about the weakening economic conditions. In minutes from its May meeting, policymakers acknowledged that the labour market could soften in the coming months due to economic uncertainties, particularly from trade policies.

Layoffs and economic forecasts

The rising jobless claims are part of a broader trend of increased layoffs, particularly in sectors most affected by trade uncertainties, such as manufacturing and retail. Companies, including Walmart, Microsoft, Chevron, Volvo, and Nissan, have recently announced plans to cut their headcount by a few thousand.

However, a survey by the Conference Board found that most US CEOs do not expect to significantly alter their workforce sizes in the coming year, even though nearly 83 per cent foresee a recession within the next 12 to 18 months.

For now, businesses are reluctant to make major cuts to their workforce, but the rising jobless claims and economic headwinds suggest that this may change if the economic outlook continues to deteriorate.

With inflationary pressures and trade uncertainties looming, the path forward for the US economy remains uncertain, and many are watching closely to see whether jobless claims continue to climb in the coming months.

The data underscores the fragility of the US economy as it navigates a challenging global landscape, with the potential for further labour market deterioration if the economic outlook continues to worsen.