The number of Americans applying for new unemployment benefits fell last week, but signs of a cooling labor market persist as businesses pull back on hiring amid growing economic uncertainty—raising the risk that the jobless rate could rise in June.
According to Thursday’s report from the Labor Department, which offers the most up-to-date snapshot of the U.S. economy, continuing claims for unemployment benefits rose to their highest level in over three years as of mid-June. While layoffs remain relatively low, hiring remains sluggish. Economists point to President Donald Trump’s expansive import tariffs as a major factor clouding business planning.
Despite these signs of softening, economists don’t believe the labor market has weakened enough to prompt the Federal Reserve to cut interest rates in July. Fed Chair Jerome Powell told Congress this week that the central bank needed more time to evaluate whether tariff-driven inflation justifies policy changes.
“The data suggest a weakening job market, especially in hiring,” said Nancy Vanden Houten of Oxford Economics. “We don’t expect the Fed to cut before December, but if it does, it may have to move more aggressively.”
For the week ending June 21, initial jobless claims fell by 10,000 to a seasonally adjusted 236,000—below expectations of 245,000. However, the data likely reflect distortions from the Juneteenth holiday.
Still, layoffs are rising amid trade-related pressures. Continuing claims—those receiving benefits after their initial filing—jumped by 37,000 to 1.974 million for the week ending June 14, the highest since November 2021. These figures also coincide with the reference period for calculating June’s unemployment rate, leading some economists to predict an increase to 4.3% from 4.2% in May.
A recent Conference Board survey also found that the number of consumers who consider jobs “plentiful” fell to its lowest level in over four years.
“We expect the unemployment rate to reach at least 4.3% in June, with a real possibility it could rise to 4.4%,” said Abiel Reinhart of J.P. Morgan.
June’s full employment report is due next week. The Fed left interest rates unchanged last week, maintaining the current range of 4.25%–4.50%, where they’ve been since December.
U.S. stocks rose, while the dollar weakened to a 3.5-year low against the euro and pound, reflecting increased market expectations for additional Fed rate cuts. Treasury yields declined as well.
GDP Revised Lower Amid Tariff Effects
Trade-related distortions are also clouding the broader economic outlook. The Commerce Department revised first-quarter GDP downward to a 0.5% annualized contraction from an earlier estimate of -0.2%, primarily due to a pullback in consumer spending and preemptive stockpiling of imports before tariffs took effect.
Consumer spending was revised sharply lower to 0.5% growth from a previously reported 1.2%, following a robust 4.0% gain in Q4, when households rushed to buy durable goods like cars ahead of higher prices.
As a result, domestic demand appeared weaker than earlier thought. Final sales to private domestic purchasers—closely watched by policymakers—were revised down to 1.9% from 2.5%.
Imports have since normalized, but exports are suffering from ongoing trade tensions. A separate Census Bureau report showed the goods trade deficit widening 11.1% in May to $96.6 billion. Exports dropped by $9.7 billion to $179.2 billion, while imports remained stable at $275.8 billion.
The Atlanta Fed projects a strong rebound in Q2 GDP, forecasting 3.4% growth. However, economists caution that this bounce likely reflects trade-related volatility rather than underlying economic strength.
Temporary suspensions on certain tariffs are due to expire in July and August, adding further uncertainty.
Recent data across retail, housing, and labor markets all suggest economic activity is softening.
“The complexity of tracking corporate inventory and trade maneuvers to avoid tariffs continues to pose serious data challenges,” said Lou Crandall, chief economist at Wrightson ICAP.
Durable Goods Rebound, but Outlook Unclear
Another Census Bureau report showed that orders for long-lasting manufactured goods rebounded sharply in May, largely due to a surge in commercial aircraft demand. Durable goods orders rose 16.4%—the biggest gain since July 2014—after a 6.6% decline in April. Aircraft orders alone soared 230.8%.
Core capital goods orders (excluding defense and aircraft), a key gauge of business investment, rose 1.7% in May after a 1.4% drop in April. Shipments of these goods—used in GDP calculations—increased 0.5%.
“May’s recovery in orders may just reflect a return to normal after temporary tariff relief,” said Veronica Clark, economist at Citigroup. “The overall level of core capital goods orders has been flat since the start of the year.”
