US jobless claims drop sharply, but tariff tensions cloud labour market outlook

The number of Americans filing for first-time unemployment benefits fell more than expected last week, signalling ongoing resilience in the labour market even as warning signs mount from escalating trade tensions and economic uncertainty.Initial jobless claims dropped by 13,000 to a seasonally adjusted 228,000 for the week ending May 3, according to the US Labour Department, Reuters reported. The reading came in below economists’ expectations of 230,000, based on a Reuters poll, and reversed some of the prior week’s spike attributed to school spring breaks in New York state.While the weekly drop reflects a still-sturdy job market, economists are increasingly wary of a potential slowdown ahead. President Donald Trump’s sweeping tariff hikes—including a 145% duty on Chinese imports—have rattled both business and consumer sentiment, adding pressure to an economy already navigating inflation concerns and slower hiring momentum.Federal Reserve Chair Jerome Powell, speaking after the central bank kept interest rates steady at 4.25–4.50% on Wednesday, warned that the scale of tariff increases has been "significantly larger than anticipated." He added, “If sustained, they’re likely to generate a rise in inflation, a slowdown in economic growth and an increase in unemployment.”Despite those concerns, employers appear hesitant to shed workers. Many firms, having struggled to hire during and after the pandemic, remain reluctant to let go of existing employees. However, businesses directly exposed to trade risks have begun modest layoffs, hinting at deeper challenges.A recent ISM manufacturing survey highlighted that employment in the sector remained weak in April, with layoffs noted as the primary adjustment tool—an indication that job cuts are becoming more deliberate.The number of people receiving benefits after their initial claim—a proxy for ongoing hiring—fell by 29,000 to 1.879 million in the week ending April 26. However, other labour indicators flashed concern: while the unemployment rate held steady at 4.2% in April, the median duration of unemployment rose to 10.4 weeks, up from 9.8 weeks in March.The economy added 177,000 jobs in April, showing moderate job creation but suggesting that hiring momentum may be slowing as businesses grow more cautious amid global trade tensions and monetary policy uncertainty.