Key Points

  • The increase in continuing jobless claims exceeded expectations, reaching the highest level since November 2021. Businesses are scaling back hiring plans due to a shift in economic policy, including the largest tariff increases in decades.
  • Data released by the U.S. Department of Labor on Thursday showed that for the week ending March 22, the number of people repeating unemployment insurance claims rose to 1.9 million from 1.8 million the previous week.
  • Samuel Tombs, chief economist at Pantheon Macroeconomics, said in a client report that the persistently high number of claims is "further evidence that businesses are significantly slowing their hiring pace amid heightened policy uncertainty." He warned: "The risk going forward is that as layoffs also begin to accelerate, this gradually rising trend in the unemployment rate will gain momentum." He predicts that by the fourth quarter, the unemployment rate will rise from 4.1% to 4.5%.

Deeper Analysis

U.S. President Donald Trump announced on Wednesday that he will impose a 10% baseline tariff on all imported goods and reciprocal tariffs of up to 34% on Chinese goods.

This major shift away from decades of free trade policy, and signs that the era of globalization seems to be coming to an end, triggered a sharp stock market decline, and many private sector economists have also lowered their economic growth forecasts.

Evan Gieseman, a trade, tax, and legislative expert at EY, said in a webcast on Thursday that the shift in trade policy is "stunning in magnitude—extremely broad in scope—and marks a return to high-tariff trade policies not seen in nearly 100 years."

"The back-and-forth volatility in tariff policy is effectively acting as an ongoing 'uncertainty tax,' preventing businesses from making long-term decisions," he said. "Following yesterday's announcement, I expect a degree of volatility in trade and tariff policy to persist."

Gregory Daco, chief economist at EY, noted in a report that import tariffs announced this year, if not weakened, would reduce GDP growth by 1 percentage point this year and by another 0.4 percentage points in 2026.

According to Daco's estimates, by the fourth quarter, consumer prices will rise by 1 percentage point, and the average U.S. middle-income household will suffer an annual income loss of $690.

"A significant adverse reaction in financial markets would amplify these shocks and could push the U.S. economy into recession," Daco added, saying that the unclear tariff outlook may prompt businesses to "adopt a wait-and-see approach and increase market volatility."

In response to the tariff announcement, the S&P 500 fell 4.8% on Thursday, and the Nasdaq plunged nearly 6%.

Federal Reserve Vice Chairman Philip Jefferson, speaking on Thursday, did not express concern about the impact of import tariffs, merely stating that "the tariff outlook has led consumers and businesses to expect higher inflation in the near term."

Jefferson said the economy and labor market are both performing "solidly," but also noted that "the labor market may see some modest softening this year."

The Institute for Supply Management said on Tuesday that U.S. manufacturers cut jobs in March amid weak demand, slower deliveries, and tariff-related cost pressures.

"Respondents continue to reduce headcounts," said Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, in a statement describing the survey results. He added that companies "still prefer 'attrition' over outright layoffs."

Not all recent labor market data have been negative. The Labor Department said Thursday that initial jobless claims for the week ending March 29 fell to 219,000 from 225,000 the previous week.

The Labor Department is scheduled to release unemployment and hiring data for March on Friday.