US jobs market showing cracks as corporate profits post largest drop since 2020

Straits Times

2 days ago

Number of people collecting unemployment checks in mid-May was the largest in 3.5 years. PHOTO: AFP
WASHINGTON - 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 May 29 showed a surge in applications in Michigan, the nation's motor vehicle assembly hub. The automobile industry has been hit with a 25 per cent duty on parts.
The number of people collecting unemployment checks in mid-May was the largest in 3.5 years.
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.
They said Mr Trump's aggressive trade policy was making it harder for businesses to plan ahead, a sentiment echoed by a Conference Board survey on May 29, which showed confidence among chief executive officers plummeting in the second quarter.
The dimming economic outlook was reinforced by other data showing corporate profits declining by the most in more than four years in the first quarter, pulled down by nonfinancial domestic industries.
A US trade court on May 28 blocked most of President Donald Trump's tariffs from going into effect in a sweeping ruling that the president overstepped his authority. They were temporarily reinstated by a federal appeals court on May 29, adding 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.'
Despite the rise in claims, worker hoarding by employers following difficulties finding labour during and after the Covid-19 pandemic continues to underpin the jobs market.
That was corroborated by the Conference Board survey, which also showed most captains of business anticipated no change in the size of their workforce over the next year even as about 83 per cent said they expected a recession in the next 12-18 months.
Nonetheless, layoffs are creeping up. 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.
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.
'This raises the risk that the unemployment rate could tick up to 4.3 per cent in the May employment report,' said Abiel Reinhart, an economist at JP Morgan.
The jobless rate was at 4.2 per cent in April. Many people who have lost their jobs are experiencing long spells of unemployment.
With profits slowing, there is probably little incentive for businesses to boost hiring. Profits from current production with inventory valuation and capital consumption adjustments dropped US$118.1 billion (S$151.9 billion)in the first quarter, the biggest decline since the fourth quarter of 2020, the Commerce Department's Bureau of Economic Analysis (BEA) said in a separate report. Profits surged US$204.7 billion in the October-December quarter.
Profits from domestic nonfinancial firms dropped US$96.7 billion. Companies ranging from airlines and retailers to motor vehicle manufacturers have either withdrawn or refrained from giving financial guidance for 2025, citing tariffs uncertainty.
US companies front-loaded imports, resulting in a record trade deficit that contributed to gross domestic product declining at a 0.2 per cent annualised rate in the January-March quarter, the BEA's second estimate of GDP showed.
Some of the imports ended up as inventory in warehouses, with growth in consumer spending downgraded to a 1.2 per cent rate from the initially reported 1.8 per cent pace.
The economy was initially estimated to have contracted at a 0.3 per cent pace in the first quarter of 2025. It grew at a 2.4 per cent rate in the fourth quarter of 2024.
'GDP will likely either contract again in the second quarter or hold in low gear, but the economy is unlikely to slip into recession,' said Bill Adams, chief economist at Comerica Bank. REUTERS
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