The number of Americans filing for unemployment benefits rose to 240,000 in the week ending May 24, up by 14,000 from the previous week and exceeding economists’ expectations. Michigan, the hub of U.S. auto manufacturing, saw a sharp increase in claims due to the impact of a 25% duty on auto parts. The number of people collecting unemployment checks in mid-May reached the highest level in over three and a half years.
Layoffs Gaining Ground
With layoffs on the rise, economists expect the unemployment rate to increase from 4.2% in April to 4.3% in May. A Bank of America report highlighted a notable uptick in jobless claims among high-income households, alongside rising claims across lower- and middle-income groups. Continuing claims climbed to 1.919 million, reflecting employers’ growing reluctance to hire despite ongoing labor shortages.
Corporate Profits Plunge
Corporate earnings fell sharply in the first quarter of 2025, with profits from current production dropping by $118.1 billion—the steepest decline since late 2020. Domestic non-financial companies were especially hard hit, losing $96.7 billion. In response to the rising uncertainty, many firms have either withdrawn or avoided issuing financial guidance for 2025.
Tariff-Driven Uncertainty
A trade court ruling temporarily blocked President Trump’s tariffs, only for them to be quickly reinstated by a federal appeals court. This legal back-and-forth has added to business concerns about future planning. According to FWDBONDS economist Christopher Rupkey, the rising jobless claims signal growing cracks in the economy. CEO confidence also dropped sharply in the second quarter.
Growth Takes a Hit
Revised GDP data showed the economy contracted at an annualized rate of 0.2% in the first quarter. Consumer spending slowed from an initial estimate of 1.8% to just 1.2%, while a spike in imports—partly due to preemptive buying ahead of tariffs—contributed to a record trade deficit. Much of the excess inventory now sits in warehouses, indicating softer demand.
Fed & Markets Reaction
Minutes from the Federal Reserve’s May meeting reflected policymakers’ growing caution about a potential labor market slowdown. Despite this, the Fed has held interest rates steady at 4.25%–4.50%. Financial markets responded with falling Treasury yields, a slight dip in the dollar, and a rally in equities.
Economic Outlook
The economic outlook is becoming increasingly fragile. While a full-blown recession may not be imminent, about 83% of CEOs surveyed by the Conference Board expect one within the next 12 to 18 months. Most companies plan to maintain current workforce levels, with hiring activity expected to remain subdued in the near term.
Key Takeaways
Rising jobless claims, declining corporate profits, and policy uncertainty are creating strong headwinds for the U.S. economy. Tariff instability is further complicating business planning. Although a recession is not yet certain, recent data suggests the economy could continue to lose momentum in the coming months.