It is pertinent to note that federal employees, many of whom have recently been laid off by Elon Musk’s Department of Government Efficiency (DOGE) – an entity created by Republican President Donald Trump – are not included in the state claims data. Claims from federal employees are processed separately under the Unemployment Compensation for Federal Employees (UCFE) program, and this data is typically reported with a one-week delay.
The White House has proposed reducing the federal government workforce, which currently numbers around 2.3 million, excluding the military and postal workers. Trump argues that the government is too bloated and needs streamlining.
Although layoffs remain historically low, keeping the labour market stable, potential disruptions loom as workers dependent on federal government contracts or funding face job losses. Federal government layoffs, hiring freezes, and spending cuts are likely to create ripple effects in local economies, especially in Washington D.C. and nearby states like Virginia and Maryland. This could also lead to private sector job cuts in industries reliant on government spending.
States such as California and Texas, with a significant number of federal workers, could also feel the impact. These employees are spread across various states and contribute significantly to local economies.
Currently, unemployment claims indicate a relatively healthy labour market, which provides the Federal Reserve with the flexibility to keep interest rates unchanged while monitoring the economic impact of the Trump administration’s fiscal, trade, and immigration policies—policies economists believe may lead to inflation.
Minutes from the Federal Reserve’s January 28-29 policy meeting, released on Wednesday, showed that policymakers were concerned about potential inflation driven by Trump’s initial policy proposals. While the Fed sees labour market conditions as “solid” and “stable,” they emphasised the need for continued monitoring of labor market indicators.
The Fed had kept its benchmark overnight interest rate unchanged in the 4.25%-4.50% range during its January meeting. The central bank had previously reduced the rate by 100 basis points since September, after raising it by 5.25 percentage points in 2022 and 2023 to combat inflation.
The claims data also covers the period during which the US government surveyed businesses for the nonfarm payrolls component of February’s employment report. The US economy added 143,000 jobs in January, although job growth was somewhat limited due to cold weather and wildfires in California.
Government employment has been a significant driver of job growth in recent months. However, economists predict a sharp slowdown in job growth during the second half of the year.
Next week, additional data on continuing claims, which is a key indicator of labor market health and a proxy for hiring, will provide more insights into the job market’s status for February.
Continuing claims for the week ending February 8 rose by 24,000 to a seasonally adjusted 1.869 million, according to the latest claims report.
With inputs from Reuters
