New applications for United States unemployment benefits fell more than expected last week, signalling continued labour market resilience even as escalating geopolitical tensions and rising energy costs weigh on business sentiment.
Initial claims for state unemployment benefits dropped by 11,000 to a seasonally adjusted 207,000 in the week ended 11 April, according to the U.S. Labor Department.
The figure came in below economists’ expectations of around 215,000 and remains at the lower end of this year’s 201,000–230,000 range, a level consistent with historically low layoffs.
The data underscores a labour market that remains stable in the near term, but economists and policymakers warn that risks are building beneath the surface as the economic fallout from the Middle East conflict intensifies.
Firms are holding back on hiring, while higher oil prices and inflation threaten to dampen consumer spending and, in turn, employment.
A recent survey from the Federal Reserve’s Beige Book found that businesses across several districts are increasingly relying on temporary or contract workers rather than committing to permanent hires.
The report, based on information collected in early April, identified the conflict involving Iran as a “major source of uncertainty” affecting decisions on hiring, pricing and investment.
Oil prices have risen by more than 35% since the conflict began in late February, pushing gasoline and diesel costs sharply higher.
Government data shows U.S. consumer prices increased 3.3% in March from a year earlier, up from 2.4% in February, reflecting the largest monthly jump in fuel costs in decades.
Elevated energy prices have driven consumer sentiment to record lows, raising concerns about a pullback in household spending.
Carl Weinberg, CEO at High Frequency Economics, told Reuters that sustained cost pressures could force businesses to reduce staff.
“At some point, elevated energy costs and prices for materials will cause firms to lay off marginal workers to protect profit margins,” he said, noting that during the 1973 oil shock it took several months for layoffs to materialise.
Continuing claims - a proxy for the number of people receiving benefits - rose by 31,000 to 1.82 million in the week ended April 4, suggesting some softening in hiring conditions.
The unemployment rate for workers aged 20 to 24 stood at 6.4% in March, compared with an overall rate of 4.3%, highlighting persistent weakness among younger jobseekers.
The labour market had already been slowing prior to the conflict, with economists citing uncertainty linked to trade policy and immigration measures.
While job growth rebounded by 178,000 positions in March following a decline in February, revisions to earlier data indicate underlying momentum remains uneven.
Manufacturing, which accounts for about 10.1% of the U.S. economy, is also showing signs of strain.
Factory output dipped 0.1% in March, according to the Federal Reserve, missing expectations for a modest increase.
Production of motor vehicles fell 3.7%, while declines were also recorded in primary metals, machinery and furniture.
Despite these pressures, financial markets suggest investors expect the Federal Reserve to remain cautious.
With inflation still above the central bank’s 2% target, policymakers left interest rates unchanged at 3.50%–3.75% last month.
Markets are currently pricing in roughly a one-in-three chance of a rate cut later this year.
Nancy Vanden Houten, lead U.S. economist at Oxford Economics, said the central bank may ultimately prioritise labour market risks over inflation.
“The labour market has become more vulnerable since the start of the war,” she said, adding that weakening conditions could prompt rate cuts despite elevated price pressures.
For now, economists describe the U.S. job market as a “low-hire, low-fire” environment — one characterised by limited layoffs but subdued hiring — leaving overall employment stable but increasingly sensitive to external shocks.
