The number of Americans filing new applications for unemployment benefits was unchanged last week while layoffs dropped sharply in February, consistent with stable labor market conditions.
While other data from the Labor Department on Thursday showed worker productivity slowed in the fourth quarter, the trend remained strong, helping to curb growth in labor costs in 2025. Labor market stability and rising inflation risks from war in the Middle East reinforced economists’ views that the Federal Reserve was in no rush to resume cutting interest rates.
“There is nothing in the latest claims data to change our view that the Fed will keep policy steady until June,” said Nancy Vanden Houten, lead U.S. economist at Oxford Economics. “The picture of the labor market gleaned from the claims data and other related statistics is not one of deterioration.”
Initial claims for state unemployment benefits were flat at a seasonally adjusted 213,000 for the week ended February 28. Economists polled by Reuters had forecast 215,000 claims for the latest week. The labor market is regaining its footing after stumbling last year amid what economists said was uncertainty stemming from President Donald Trump’s broad tariffs, which he pursued under a law meant for use in national emergencies.
The import duties have since been struck down by the U.S. Supreme Court. Trump responded to the ruling by imposing a 10% global tariff and later announced it would rise to 15%.
The U.S. central bank’s Beige Book report on Wednesday described employment levels as “generally stable in recent weeks as seven of the 12 districts reported no change in hiring.” The report noted that “contacts in several districts cited rising nonlabor input costs, softer demand, or uncertainty about overall economic conditions as reasons for flat or lower employment levels.”
Economists are optimistic that the labor market will regain momentum this year as tax cuts stimulate demand. A separate report from global outplacement firm Challenger, Gray & Christmas showed U.S.-based employers announced 48,307 job cuts in February, down 55% from January and 72% from a year ago.
Hiring plans soared 140% from January, but they were down 63% compared to last February. Tepid hiring means some people who lose their jobs are experiencing long bouts of unemployment.
The number of people receiving unemployment benefits after an initial week of aid, a proxy for hiring, increased 46,000 to a seasonally adjusted 1.868 million during the week ended February 21, the claims report showed.
Unemployed recent college graduates are not included in the claims data because they have limited or no work history, disqualifying them from claiming jobless benefits. The claims data have no bearing on February’s employment report due on Friday as they fall outside the survey week.
Nonfarm payrolls likely increased by 59,000 jobs in February after accelerating 130,000 in January, a Reuters survey of economists predicted. The unemployment rate is expected to have held steady at 4.3%.
U.S. stocks opened lower as investors worried the Middle East conflict could stoke inflation. The dollar advanced against a basket of currencies. U.S. Treasury yields rose.
Unit Labor Costs Contained
The Fed is expected to keep its benchmark overnight interest rate in the 3.50%-3.75% range at its March 17-18 meeting.
In a third report, the Labor Department’s Bureau of Labor Statistics said nonfarm productivity, which measures hourly output per worker, increased at a 2.8% annualized rate in the fourth quarter after rising at an upwardly revised 5.2% pace in the third quarter. Economists had forecast productivity increasing at a 1.9% rate after advancing at a previously reported 4.9% pace in the July-September quarter.
Productivity growth in the second quarter was slightly revised up to a 4.2% rate from the previously reported 4.1% pace. Productivity grew at a 2.8% rate from a year ago. It increased 2.2% in 2025. The report was delayed by last year’s government shutdown.
Economists expect the rapid adoption of artificial intelligence will boost productivity and rein in labor costs.
Unit labor costs – the price of labor per single unit of output – increased at a 2.8% rate last quarter after declining at a revised 1.8% pace in the third quarter. Economists had forecast labor costs rebounding at a 2.0% pace after contracting at a previously reported 1.9% rate.
They fell at an unrevised 2.9% rate in the second quarter.
Labor costs grew at a 1.3% rate from a year ago. They increased 1.9% in 2025.
“While the spike in oil prices and recent signs of strengthening goods price inflation will lead to caution at the Fed in the near term, the low rate of unit labor costs growth lends support to the view that there is further disinflation ahead for services, provided oil prices do not rise much further,” said Stephen Brown, deputy chief North America economist at Capital Economics.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci )
