U.S. Labor Market Steady with Falling Jobless Claims, But Tariffs Hinder Homebuilding and Economic Growth

In early April, U.S. initial jobless claims fell by 9,000 to 215,000, a two-month low, indicating labor market stability. However, single-family homebuilding dropped 14.2% in March due to rising material costs from tariffs, according to the U.S. Census Bureau. This decline contributes to a broader economic slowdown, with Q1 2025 GDP growth expected to be near zero. Tariffs have increased construction costs, impacting the housing sector and overall economic growth, as noted by the National Association of Home Builders and Federal Reserve Chair Jerome Powell.

Jobless Claims Drop to Two-Month Low

Initial claims for state unemployment benefits fell by 9,000 to a seasonally adjusted 215,000 for the week ending April 12, according to the U.S. Department of Labor. This marks the lowest level since February and comes in below economists’ expectations of 225,000 claims. The data suggests that despite economic headwinds, companies are largely holding off on layoffs.

The decline in claims coincides with the period during which the government surveys businesses for the monthly nonfarm payrolls report. Claims also fell during the March survey week, when the economy added 228,000 jobs and the unemployment rate ticked up slightly to 4.2% from 4.1% in February.

Continuing claims, which represent the number of people receiving benefits after an initial week of aid, rose by 41,000 to 1.885 million in the week ending April 5. This increase may indicate that some laid-off workers are facing challenges in securing new employment, even as overall layoffs remain low.

Tariffs Drive Down Single-Family Homebuilding

While the labor market remains stable, the housing sector is under significant pressure. Single-family housing starts fell 14.2% in March to a seasonally adjusted annual rate of 940,000 units, the lowest level since July 2024, according to the U.S. Census Bureau. Year-over-year, starts were down 9.7%.

The decline in homebuilding is closely tied to rising material costs driven by tariffs. The National Association of Home Builders (NAHB) reported that suppliers have raised prices by an average of 6.3%, translating to an estimated $10,900 increase in the cost of building a typical home. These cost increases have overshadowed recent declines in mortgage rates, which might otherwise have supported housing demand.

Permits for future construction of single-family homes also fell by 2.0% to a rate of 978,000 units in March, signaling continued weakness ahead. Meanwhile, the number of single-family homes approved for construction but not yet started rose 6.5% to 148,000 units, the highest level in nearly three years. This suggests that builders are delaying projects amid cost uncertainties.

The NAHB survey released in April showed that sentiment among single-family homebuilders remains depressed, with the majority citing tariffs as a key factor behind rising material costs. Items such as softwood lumber, steel, and electrical components—many of which are imported—have seen significant price hikes due to duties imposed by the Trump administration.

Economic Growth Slows Sharply in Q1

The broader U.S. economy appears to have slowed significantly in the first quarter of 2025. According to the Bureau of Economic Analysis, real GDP growth stood at 2.5% year-over-year in Q4 2024, down from 2.7% in the previous quarter and 3.2% a year earlier. This marks a continued deceleration from the long-term average of 3.14%.

Forecasts for Q1 2025 suggest even weaker performance. The Federal Reserve’s GDPNow model, as of mid-April, indicates near-zero growth for the quarter. Economists attribute the slowdown to a combination of factors, including a surge in imports ahead of tariff hikes, reduced business investment, and declining residential construction activity.

Federal Reserve Chair Jerome Powell acknowledged the economic deceleration in recent remarks, citing heightened uncertainty stemming from trade policy. The administration’s April 2 announcement of new tariffs—dubbed "Liberation Day"—was followed by a 90-day pause, but a 10% flat duty on all imported goods remains in effect. The Department of Commerce has also signaled plans to raise tariffs on certain goods to over 34%, further clouding the outlook for businesses.

Housing Sector Faces Prolonged Headwinds

The impact of tariffs on the housing sector is multifaceted. Builders are not only facing higher costs for materials but also dealing with supply chain disruptions and limited flexibility in sourcing alternatives. Many have long-standing relationships with suppliers in countries now subject to tariffs, making it difficult to pivot quickly.

According to the NAHB, nearly $14 billion worth of imported goods are used annually in the construction of new single- and multifamily homes. These imports account for about 7% of all materials used in residential construction. With tariffs affecting a wide range of products—from roofing and drywall to plumbing and lighting fixtures—builders are being forced to make rapid purchasing decisions to avoid further cost increases.

The inventory of single-family homes under construction fell 1.6% in March to a rate of 632,000 units, the lowest since February 2021. Meanwhile, completions rose slightly by 0.9% to 1.029 million units, indicating that while some projects are being finished, fewer new ones are being initiated.

Broader Implications for the Economy

The slowdown in homebuilding is contributing to broader economic weakness. Residential investment is a key component of GDP, and the sharp decline in single-family starts is expected to weigh on overall growth in the coming quarters. Economists polled by Reuters had forecast housing starts to fall to a rate of 1.420 million units in March, but the actual figure came in lower at 1.324 million units—a drop of 11.4% from the previous month.

Multi-family building permits, in contrast, rose 10.1% to a rate of 445,000 units, lifting overall building permits by 1.6% to 1.482 million units. However, this uptick is unlikely to offset the drag from the single-family segment, which constitutes the bulk of residential construction.

With business sentiment subdued and financial conditions tightening, the outlook for the second quarter remains uncertain. While the labor market has so far remained resilient, continued pressure from tariffs and weak investment could pose risks to employment and growth in the months ahead.

References

• US single-family housing starts tumble to an eight-month low in March
• US housing starts are at an eight-month low. Here’s why they may drop further
• What Trump’s Tariffs Could Mean For Homebuilding—and the Housing Crisis
• ‘It’s scaring the crap out of me’: How Trump’s tariffs are colliding with rebuilding fire ravaged L.A.
• US Real GDP YoY Quarterly Trends: Gross Domestic Product (GDP) | YCharts
• Q1 Stall Speed? Tracking and Betting on GDP Growth, Retail Sales Composition | Investing.com