US weekly jobless claims at seven-month high; trade deficit posts record contraction

Khaleej Times

a day ago

The number of Americans filing new applications for unemployment benefits increased to a seven-month high last week, pointing to softening labor market conditions amid mounting economic headwinds from tariffs.
The report from the Labour Department on Thursday also continued to show workers losing their jobs having a tough time landing new opportunities as uncertainty caused by President Donald Trump's aggressive trade policy leaves employers reluctant to increase headcount.
Economists said technical difficulties adjusting the data at the start of summer could have contributed to the second straight weekly increase in unemployment claims. Still, they said the data offered some evidence of labor market strains.
"We won't dismiss the rise in claims over the last two weeks, which may be signaling weakening labor market conditions in response to the Trump administration's tariff policies and uncertainty," said Nancy Vanden Houten, lead U.S. economist at Oxford Economics. "However, seasonal quirks might have contributed to the rise in claims."
Initial claims for state unemployment benefits rose 8,000 to a seasonally adjusted 247,000 for the week ended May 31, the highest level since last October. Economists had forecast 235,000 claims for the latest week.
There was a sharp rise in unadjusted claims in Kentucky, likely related to layoffs in the motor vehicle industry amid duties on imported parts. There was also a notable increase in filings in Tennessee, which also has motor vehicle assembly plants. Claims surged in the prior week in Michigan, attributed to layoffs in the manufacturing industry.
But companies are generally hoarding workers after struggling to find labor during and after the COVID-19 pandemic.
The Federal Reserve's Beige Book report on Wednesday showed "comments about uncertainty delaying hiring were widespread," noting that "all districts described lower labor demand, citing declining hours worked and overtime, hiring pauses and staff reduction plans." It said while some districts reported layoffs in certain sectors, "these layoffs were not pervasive."
An Institute for Supply Management survey also made similar observations, reporting steady employment in the services sector in May, but also pointing out that "higher scrutiny is being placed on all jobs that need to be filled."
U.S. stocks were trading lower. The dollar slipped against a basket of currencies. U.S. Treasury yields fell.
The number of people receiving benefits after an initial week of aid, a proxy for hiring, slipped 3,000 to a seasonally adjusted 1.904 million during the week ending May 24, the claims report showed. The elevation in the so-called continuing claims aligns with consumers' ebbing confidence in the labor market.
The claims data have no bearing on the Labour Department's closely watched employment report for May, scheduled to be released on Friday, as it falls outside the survey period.
Nonfarm payrolls likely increased by 130,000 jobs last month after advancing by 177,000 in April, a Reuters survey of economists showed. The unemployment rate is forecast being unchanged at 4.2%.
"A gradual but genuine slackening of the labor market is underway," said Oliver Allen, senior U.S. economist at Pantheon Macroeconomics.
There was, however, some welcome news on the economy.
A separate report from the Commerce Department's Bureau of Economic Analysis showed the trade deficit narrowed sharply in April, with imports decreasing by the most on record as the front-running of goods ahead of tariffs ebbed, which could provide a lift to economic growth this quarter.
The trade gap contracted by a record 55.5% to $61.6 billion, the lowest level since September 2023. The goods trade deficit eased by a record 46.2% to $87.4 billion, the lowest level since October 2023.
A rush to beat import duties helped to widen the trade deficit in the first quarter, which accounted for a large part of the 0.2% annualized rate of decline in gross domestic product last quarter. The contraction in the deficit, at face value, suggests that trade could significantly add to GDP this quarter, but much would depend on the state of inventories.
"The collapse in the trade gap in April, although unlikely to be sustained, points to a massive trade addition to GDP growth and, if the offset to the import swing is not measured in inventories, second-quarter measured GDP growth could be eye-popping, possibly in the area of 5%, but as meaningless as the first-quarter's decline in output," said Conrad DeQuadros, senior economic advisor at Brean Capital.
Imports decreased by a record 16.3% to $351.0 billion in April. Goods imports slumped by a record 19.9% to $277.9 billion, held down by a $33.0 billion decline in imports of consumer goods, mostly pharmaceutical preparations from Ireland.
Imports of cellphones and other household goods fell $3.5 billion. Industrial supplies and materials imports declined $23.3 billion, reflecting decreases in finished metal shapes and other precious metals.
Motor vehicle, parts and engines imports fell $8.3 billion with passenger cars accounting for much of the decline. The front-loading of imports is probably not over. Higher duties for most countries have been postponed until July, while those for Chinese goods have been delayed until mid-August.
The Trump administration had given U.S. trade partners until Wednesday to make their "best offers" to avoid other punishing import levies from taking effect in early July.
Exports rose 3.0% to $289.4 billion, an all-time high. Goods exports increased 3.4% to a record $190.5 billion, boosted by a $10.4 billion jump in industrial supplies and materials, mostly finished metal shapes, nonmonetary gold and crude oil.
Capital goods exports advanced $1.0 billion, lifted by computers. But exports of motor vehicles, parts and engines fell $3.3 billion, held down by passenger cars as well as trucks, buses and special purpose vehicles.
Exports of services increased $2.1 billion to $98.9 billion, lifted by travel, despite reports of decreased tourist visits because of the trade tensions and an immigration crackdown.