By Lucia Mutikani
WASHINGTON, March 12 (Reuters) – The number of Americans filing new applications for unemployment benefits fell last week, suggesting labor market conditions remained stable even after the economy shed jobs in February, but the U.S.-Israeli war against Iran poses a downside risk.
For now, the low level of layoffs evident in the report from the Labor Department on Thursday should give the Federal Reserve room to keep interest rates unchanged for some time as the conflict in the Middle East drives up oil prices and threatens to fan domestic inflation, economists said. The war has raised gasoline prices by at least 20% since it started.
“The low and steady level of initial jobless claims suggests the big drop in nonfarm payrolls in February was a blip, not the start of a trend,” said Michael Pearce, chief U.S. economist at Oxford Economics. “We think the evidence is consistent with labor market conditions stabilizing before the fallout of the Iran war hits the economy.”
Initial claims for state unemployment benefits slipped 1,000 to a seasonally adjusted 213,000 for the week ended March 7. Economists polled by Reuters had forecast 215,000 claims for the latest week. Claims have been tucked in a 199,000-232,000 range this year amid low layoffs. The government reported last week that nonfarm payrolls decreased by 92,000 jobs in February, the sixth decline since January 2025 and the second largest.
The drop was blamed on harsh winter weather, a strike by healthcare workers and payback following outsized payroll gains in January, as well as a general hesitancy by businesses to increase headcount because of uncertainty from import tariffs and integration of artificial intelligence into some work roles.
The U.S. Supreme Court struck down President Donald Trump’s sweeping tariffs, which he pursued under a law meant for use in national emergencies. But Trump responded to the ruling by imposing a 10% global tariff, which he said would rise to 15%.
The Trump administration said on Wednesday it was launching two trade investigations into excess industrial capacity in 16 major trading partners and into forced labor.
Soaring gasoline prices and stock market volatility would weigh on consumer spending and undercut demand for workers, economists warned. The U.S. central bank was expected to keep its benchmark overnight interest rate unchanged in the 3.50%-3.75% range next Wednesday.
Economists see the window for rate cuts closing, with financial markets anticipating a single reduction this year in September. Stocks on Wall Street fell as oil prices surged to nearly $100 a barrel. The dollar advanced against a basket of currencies. U.S. Treasury yields rose.
The number of people receiving unemployment benefits after an initial week of aid, a proxy for hiring, dropped 21,000 to a seasonally adjusted 1.850 million during the week ended February 28, the claims report showed. The so-called continuing claims could be declining as some people exhaust their eligibility, limited to 26 weeks in most states.
Continuing claims also do not include recent college graduates, who are experiencing long spells of unemployment, because they have limited or no work history, disqualifying them from claiming jobless benefits. The unemployment rate increased to 4.4% in February from 4.3% in January.
SINGLE-FAMILY HOUSING STARTS FALL
Other news on the economy was mixed, with the housing market still mired in weakness and the trade deficit contracting in January. Single-family housing starts, which account for the bulk of homebuilding, dropped 2.8% to a seasonally adjusted annual rate of 935,000 units, the Commerce Department’s Census Bureau said in a separate report.
The report was delayed by last year’s shutdown of the federal government. The drop in homebuilding likely reflected inclement weather as single-family housing starts tumbled 33.3% in the Northeast and fell 4.6% in the South, among the areas slammed by heavy snow and frigid temperatures in January.
Single-family starts dropped 6.5% year-on-year.
Homebuilding has been hampered by tariffs, including on lumber and vanity cabinets, as well as worker shortages amid an immigration crackdown and higher mortgage rates. Mortgage rates mostly fell this year, but have recently been rising in tandem with Treasury yields.
Homebuilder sentiment is depressed and a glut of unsold new homes remains, combining with slowing house price inflation to discourage builders from ramping up construction.
Single-family building permits fell 0.9% to a rate of 873,000 units in January. They decreased 11.6% from a year ago.
“We continue to expect that the already-elevated supply of new homes for sale and poor affordability will limit the upside new construction activity this year,” said Veronica Clark, an economist at Citigroup. “Residential investment in GDP is unlikely to be a substantial contributor to growth.”
Residential investment, which includes homebuilding, has contracted for four straight quarters. Trade could add to gross domestic product growth this quarter. The trade gap contracted 25.3% to $54.5 billion in January, the Bureau of Economic Analysis and Census Bureau said in a third report.
Tariffs have caused extreme volatility in the trade data.
Trump has defended the tariffs as necessary to address trade imbalances and protect U.S. industries. But a manufacturing rebirth remains elusive, with 100,000 factory jobs lost since January 2025. The goods trade deficit with China was little changed at $12.5 billion in January, but the gap with the European Union narrowed $5.0 billion to $6.1 billion.
Overall exports jumped 5.5% to an all-time high of $302.1 billion in January. The increase was the largest since October 2021. Goods exports soared 8.1% to $195.5 billion, mostly boosted by nonmonetary gold and other precious metals.
Capital goods exports increased $5.4 billion to an all-time high, driven by computers, civilian aircraft and computer accessories. Exports of other goods were the highest on record.
But consumer goods exports decreased $2.8 billion to the lowest level since October 2022, pulled down by pharmaceutical preparations.
Imports fell 0.7% to $356.6 billion. Goods imports slipped 1.0% to $277.3 billion, dragged down by a $3.3 billion decrease in consumer goods, mostly pharmaceutical preparations.
Imports of automotive vehicles, parts and engines fell as did those of industrial supplies and materials amid a decline in nonmonetary gold. But capital goods imports jumped $3.4 billion to a record high, driven by computers and telecommunications equipment, likely linked to AI and data-center construction.
The goods trade deficit narrowed 17.6% to $81.8 billion in January. Trade made a negligible contribution to the economy’s 1.4% annualized growth pace in the October-December quarter.
“In normal times, these reports might have been one or two filler pieces in the overall economic picture jigsaw puzzle but are of little significance in the current climate,” said John Ryding, chief economic advisor at Brean Capital.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci)
