(Reuters) - On Thursday, federal judges in California and Maryland ordered U.S. President Donald Trump's administration to reinstate thousands of probationary federal workers who lost their jobs as part of mass firings carried out at 19 agencies.
The back-to-back rulings were the most significant blow yet to Trump and top adviser Elon Musk's effort to drastically shrink the federal bureaucracy. Government agencies face a Thursday deadline to submit plans for a second wave of mass layoffs and to slash their budgets.
U.S. District Judge James Bredar in Baltimore agreed with 20 Democratic-led states that 18 of the agencies which had fired probationary employees en masse in recent weeks violated regulations governing the laying off of federal workers.
Bredar's restraining order applies to, among other agencies, the Environmental Protection Agency, the Consumer Financial Protection Bureau, and the U.S. Agency for International Development, all three of which have been in the deregulatory and cost-cutting cross-hairs of the Trump administration.
Other agencies covered by the judge's order include the U.S. Departments of Agriculture, Commerce, Education, Energy, Health and Human Services, Homeland Security, Housing and Urban Development, Interior, Labor, Transportation, Treasury and Veterans Affairs.
While the administration argued it dismissed each of the employees for performance or other individualized reasons, the judge said that was not true, which would make the job cuts a form of mass layoff necessitating advance notice to the states, who have obligations to assist their newly unemployed citizens.
"The sheer number of employees that were terminated in a matter of days belies any argument that these terminations were due to the employees' individual unsatisfactory performance or conduct," wrote Bredar, an appointee of Democratic President Barack Obama.
His decision came hours after U.S. District Judge William Alsup during a hearing in San Francisco ordered the reinstatement of probationary employees terminated at six agencies, including the U.S. Department of Defense, which was not covered by the Maryland decision.
Alsup said the U.S. Office of Personnel Management (OPM), the human resources department for federal agencies, had improperly ordered those agencies to fire workers en masse even though it lacked the power to do so.
"It is a sad day when our government would fire some good employee and say it was based on performance when they know good and well that's a lie," said Alsup, an appointee of former President Bill Clinton, a Democrat.
White House press secretary Karoline Leavitt in a statement issued following Alsup's decision said the administration would "immediately fight back."
[1/2]San Francisco residents photograph a group of protesters during a demonstration as part of a nationwide series of protests against the mass firings of employees in a campaign by President Donald Trump and his adviser Elon Musk to radically cut back the U.S. bureaucracy, at Fort Mason Park in San... Purchase Licensing Rights
"The President has the authority to exercise the power of the entire executive branch - singular district court judges cannot abuse the power of the entire judiciary to thwart the President's agenda," Leavitt said.
24,000 PROBATIONARY WORKERS
Trump and Musk, architect of the administration's Department of Government Efficiency, are pursuing an aggressive campaign to shrink the federal workforce, made up of about 2.3 million workers when Trump took office in January.
The first round of mass firings focused on probationary workers, who have limited grounds to challenge their terminations. At least 24,000 have been terminated since Trump returned to office, according to the Democratic-led states, who filed their lawsuit challenging the firings last week.
Probationary workers typically have less than one year of service in their current roles, though some are longtime federal employees. They have fewer job protections than other government workers but in general can only be fired for performance issues.
The states in their lawsuit say that by firing workers en masse, federal agencies engaged in mass layoffs that are supposed to be guided by a series of regulations. The agencies did not follow those procedures, though, such as giving state and local governments 60 days' notice in advance of mass layoffs, the states say.
The states say the terminations have left them with an abrupt influx in unemployment claims and higher demand for social services.
The Trump administration says that federal agencies can terminate probationary workers for virtually any reason. OPM said in February the probationary period "is a continuation of the job application process, not an entitlement for permanent employment."
The lawsuit before Alsup was filed by unions, nonprofit groups and the state of Washington. They claim the mass firings were unlawful because they were ordered by OPM rather than left to the discretion of individual agencies.
The plaintiffs include the American Federation of Government Employees, which represents 800,000 federal workers. The union's president, Everett Kelley, said in a statement Alsup's decision was an important victory against "an administration hellbent on crippling federal agencies and their work on behalf of the American public."
Alsup last month had temporarily blocked OPM from ordering agencies to fire probationary employees, but declined at the time to require that fired workers get their jobs back. The plaintiffs subsequently amended their lawsuit to include the agencies that fired probationary workers.
The Merit Systems Protection Board, which reviews federal employees' appeals when they are fired, earlier this month ordered the Agriculture Department to reinstate nearly 6,000 probationary workers at least temporarily.
U.S. Postmaster General Louis DeJoy told Congress he signed an agreement with Elon Musk's DOGE government reform team to provide assistance to the money-losing agency as it works to address "big problems."
USPS, an independent government agency with 635,000 employees that lost $9.5 billion last year, has been exempt from DOGE-directed federal employee reductions. DeJoy told Congress in a letter seen by Reuters that USPS plans to reduce its workforce by 10,000 workers in the next month through a voluntary early retirement program first announced in January. The Post Office has cut 30,000 jobs since 2021.
Get weekly news and analysis on U.S. politics and how it matters to the world with the Reuters Politics U.S. newsletter. Sign up here.
DeJoy said the agreement with DOGE and the General Services Administration will allow the government reform team to "assist us in identifying and achieving further efficiencies.... The DOGE team was gracious enough to ask for big problems they can help us with."
DOGE is working across government to cancel contracts and shrink agencies.
DeJoy cited a number of issues including management of retirement assets and its workers' compensation program by other government agencies, unfunded mandates and burdensome regulatory requirements.
DeJoy has led a dramatic effort to restructure the post office over the last five years -- including cutting forecasted losses from $160 billion to $80 billion over a decade -- that has used similar tactics to the DOGE team including shrinking the workforce and canceling or renegotiating contracts.
He said the Postal Regulatory Commission "is an unnecessary agency that has inflicted over $50 billion in damage to the Postal Service by administering defective pricing models and decades-old bureaucratic processes."
The Postal Regulatory Commission called DeJoy's statement false, arguing USPS had wasted $100 billion in financial assistance from Congress and the commission, losing more money and "making USPS less efficient, and collapsing service, especially for rural Americans."
Representative Gerald Connolly, top Democrat on the committee overseeing USPS, said DeJoy was allowing DOGE to "infiltrate" the agency, suggesting DOGE would "undermine it, privatize it, and then profit off Americans’ loss."
GSA and DOGE did not comment.
Last month, two media outlets reported President Donald Trump was preparing to issue an executive order to fire the Postal Service board of governors. The White House denied the plan but Trump said he was considering merging the Postal Service with the U.S. Commerce Department, a move Democrats said would violate federal law.
Musk, a billionaire top adviser to Trump, said last week he thought USPS should be privatized.
Commerce Secretary Howard Lutnick has said the Postal Service could help shrink the department's costs by providing workers to conduct the U.S. census and handle tasks performed by 20,000 Social Security employees.
The Postal Service is adopting new service standards that will save the agency at least $36 billion over 10 years.
The Postal Service has lost more than $100 billion since 2007. Last month, it reported a fourth-quarter profit of $144 million.
As electronic communications have proliferated, the agency has been hurt by an 80% decline in first-class mail volume since 1997. Volumes are now at the lowest level since 1968.
DeJoy announced last month he plans to leave after about five years on the job.
The potential scale of President Donald Trump's efforts to shrink the U.S. federal government could become clearer on Thursday, the deadline for government agencies to submit plans for a second wave of mass layoffs and to slash their budgets.
Trump's efforts to fire government workers, however, hit a legal snag on Thursday, with a California federal judge ordering six agencies to reinstate thousands of probationary employees who had been dismissed in recent weeks.
Get weekly news and analysis on U.S. politics and how it matters to the world with the Reuters Politics U.S. newsletter. Sign up here.
U.S. District Judge William Alsup in San Francisco ruled that probationary workers, typically those with less than two years on the job, should be reinstated at the Department of Defense, Department of Veterans Affairs, Department of Agriculture, Department of Energy, Department of Interior and the Treasury Department.
His ruling does not affect the career federal employees set to be fired by agencies in plans to be submitted to the White House and the Office of Personnel Management on Thursday, the government's human resources department. That process could eliminate tens of thousands of federal jobs.
The new round of layoffs marks the latest step in Trump's sweeping effort to remake the federal bureaucracy - a task he has largely put in the hands of tech billionaire Elon Musk and his Department of Government Efficiency.
So far, DOGE has overseen cuts of more than 100,000 jobs across the 2.3 million-member federal civilian workforce, the freezing of foreign aid, and the canceling of thousands of programs and contracts.
Many probationary workers were told they were being let go for poor performance despite performance appraisals showing otherwise.
"It is a sad day when our government would fire some good employee and say it was based on performance when they know good and well that’s a lie," Alsup said in what amounted to the most significant legal setback for Trump and Musk to date.
Dozens of lawsuits have been filed by labor unions and others challenging the legality of the DOGE-led firings, with mixed success.
AMERICANS CONCERNED ABOUT DOGE CUTS
The prospect for more job losses comes with financial markets already rattled about the economic risks posed by Trump's global trade war. Over the weekend, Trump declined to predict whether his tariff policies might cause a recession.
The Trump administration is taking some steps to mitigate potential risks. On Wednesday, a White House official urged federal agencies to refrain from laying off their cybersecurity teams, citing national security concerns.
Americans are broadly supportive of the idea of cutting the size of the federal government, with 59% of respondents to a Reuters/Ipsos poll completed on Wednesday saying they supported that goal.
But they expressed concern about the way Trump was going about doing so, with a similar 59% of respondents saying they opposed the moves to fire tens of thousands of federal workers.
Trump appears to be rushing to enact deep, painful reforms to use his political capital before whatever is left of the post-election honeymoon period comes to an end, said Mark Jones, a political science professor at Rice University.
"The Trump administration knows that it has a limited time horizon," Jones said. "The risk is they cut too much, or they don't cut strategically, and it has negative blowbacks in terms of the ability of the federal government to function."
With Musk at his side, Trump signed an executive order on February 11 directing all agencies to "promptly undertake preparations to initiate large-scale reductions in force," using a legal term commonly referred to as RIF to denote mass layoffs.
An OPM memo said plans should include "a significant reduction" of full-time staff, cuts to real estate, a smaller budget, and the elimination of functions not mandated by law.
The agencies are unlikely to publicly disclose their plans in full, though some may provide statements outlining cuts.
A handful of agencies have already telegraphed details of the second phase of layoffs. The Department of Veterans Affairs was aiming to cut more than 80,000 workers, and the U.S. Department of Education said on Tuesday it would lay off nearly half its 4,000-strong staff.
The National Oceanic and Atmospheric Administration, which provides weather forecasts, planned to layoff more than 1,000 workers.
Several agencies have offered employees lump-sum payments to voluntarily retire early, which could help the agencies avoid legal complications inherent in the RIF process, which unions have vowed to fight in court.
Trump and Musk have said the government is bloated and prone to wasting taxpayers' money. DOGE says it has saved $105 billion by eliminating waste, but has publicly documented just a fraction of those savings, and its accounting has been plagued by errors and revisions.
The Johns Hopkins University said on Thursday it will slash over 2,000 jobs in the U.S. and abroad after the administration of President Donald Trump terminated $800 million in grants to the renowned academic institution.
It marked the biggest layoff in the university's history and involved 247 domestic U.S. workers for the academic institution and another 1,975 positions outside the U.S. in 44 countries.
Get weekly news and analysis on U.S. politics and how it matters to the world with the Reuters Politics U.S. newsletter. Sign up here.
The job cuts impact the university's Bloomberg School of Public Health, its medical school and affiliated non-profit for international health, Jhpiego.
"This is a difficult day for our entire community. The termination of more than $800 million in USAID funding is now forcing us to wind down critical work here in Baltimore and internationally," the university said in a statement shared with media.
Since taking office on January 20, Trump and his billionaire ally Elon Musk have attempted to dismantle the U.S. Agency for International Development.
The Trump administration has canceled more than 80% of all the programs at USAID following a six-week review, U.S. Secretary of State Marco Rubio said on Monday.
In addition to attacks on the U.S. foreign aid agency, the Trump administration is also probing 60 American universities, including Hopkins, over pro-Palestinian protests on campuses.
The Trump administration alleges protesters are antisemitic. Demonstrators deny the allegations and say the U.S. government is conflating their criticism of U.S. ally Israel's military assault on Gaza with antisemitism.
Last week, the U.S. canceled $400 million in grants and contracts to New York's Columbia University.
The Trump administration is also seeking to deport Mahmoud Khalil, a Palestinian graduate student who has played a prominent role in pro-Palestinian protests at Columbia.
U.S. President Donald Trump on Thursday threatened to slap a 200% tariff on wine, cognac and other alcohol imports from Europe, opening a new front in a global trade war that has roiled financial markets and raised recession fears.
Stocks fell on the news, as investors worried that Trump would enact stiffer trade barriers around the world's largest consumer market. The S&P 500 finished the day more than 10% below its record high reached last month, confirming the benchmark index for U.S. stocks is in a correction.
Get a look at the day ahead in U.S. and global markets with the Morning Bid U.S. newsletter. Sign up here.
Trump's threat came in response to a European Union plan to impose tariffs on American whiskey and other products next month -- which itself is a reaction to Trump's 25% tariffs on steel and aluminum imports that took effect on Wednesday. The European Commission had no immediate comment on the move.
Canada, a neighbor and close ally that is the biggest aluminum provider to the U.S., has also announced countermeasures to Trump's metals tariffs and has taken the dispute to the World Trade Organization. Talks between U.S. and Canadian officials on Thursday failed to produce a breakthrough.
Trump has threatened to impose an array of trade penalties since returning to the White House in January, though he has postponed action on many of them. At an Oval Office meeting with NATO Secretary-General Mark Rutte later on Thursday, he said he would not back off from reciprocal tariffs he has vowed to impose on all trading partners on April 2.
"We've been ripped off for years, and we're not going to be ripped off," he said.
Alcohol is shaping up to be a key friction point in the brewing trade war.
Some Canadian retailers have pulled American bourbon from their shelves as relations between the two countries have frayed and Trump has threatened to annex that country.
U.S. Commerce Secretary Howard Lutnick met with Canadian Finance Minister Dominic LeBlanc and Ontario Premier Doug Ford on Thursday to discuss the metals tariffs, as well as economic and national security issues, the Canadian officials said.
Following his meeting with Lutnick, Ford told reporters in Washington: "We had a very, very productive meeting ... we feel the temperature is being lowered, and we've also agreed that we're going to have another meeting next week."
LeBlanc said Canadian officials have made clear that they will not reopen dairy provisions of the U.S.-Mexico-Canada trade agreement, a demand repeatedly made by Trump, who has railed against Canada's high tariffs on U.S. dairy products. But he said the issue was not discussed with Lutnick on Thursday.
He said it was not particularly helpful to have the tariffs in place in the run up to a review of USMCA.
Many of the EU's proposed countermeasures, worth 26 billion euros ($28.31 billion), would apply to products with little more than symbolic value, such as dental floss and bathrobes.
But the proposed 50% duty on U.S. bourbon would be a significant hit for the industry, which has seen exports grow steadily since the United States lifted tariffs Trump imposed during his 2017-2021 term in office.
[1/3]A customer pours a glass of Beaujolais Nouveau wine at Le Mesturet restaurant in Paris, France, November 16, 2023. REUTERS/Sarah Meyssonnier/File Photo Purchase Licensing Rights
The EU accounted for roughly 40% of all spirits exports in 2023, according to the Distilled Spirits Council of the United States, a trade group.
Likewise, the United States accounts for 31% of EU wine and spirits exports, according to Eurostat.
Trump's proposed 200% tax on European alcohol would create further headwinds for producers like Pernod Ricard (PERP.PA), which has already cut its sales outlook due to Chinese duties imposed last year.
INDUSTRY CALLS FOR MORE TOASTS, FEWER TARIFFS
Industry officials on both sides of the Atlantic urged their leaders to de-escalate.
"This cycle of tit-for-tat retaliation must end now!" said spiritsEurope, an industry trade group.
Trump says tariffs are needed to revitalize U.S. industries shrunken after decades of globalization, and he has stacked his administration with officials who agree with those views.
Treasury Secretary Scott Bessent said he was not worried about Wall Street volatility because the Trump administration is focused on a longer-term transformation of the U.S. economy.
He warned that the EU has more to lose in a trade war, as it relies more on exports to the United States.
"I would counsel these government leaders that they are on the losing side of this argument economically," he said on CNBC.
Trump's barrage of threats has spooked investors, businesses and consumers. Producers of jets, coffee, clothing, autos and packaged foods are among the many businesses scrambling to assess their operations as Trump's actions threaten international supply chains.
Even Tesla (TSLA.O), owned by Trump adviser Elon Musk, argued in a letter to U.S. trade officials that the trade war could make it a target for retaliatory tariffs against the U.S.
"As a U.S. manufacturer and exporter, Tesla encourages USTR to consider the downstream impacts of certain proposed actions taken to address unfair trade practices," the electric automaker said in a letter dated Tuesday.
Some economists say the uncertainty threatens the health of the U.S. economy and raises the risk of recession. A Reuters/Ipsos poll released on Wednesday found that 70% of Americans expect Trump's tariffs to make regular purchases more expensive.
Trump said his alcohol tariffs would help domestic producers. But U.S. importers and distributors said it would lead to lost sales, layoffs and shuttered businesses.
Gold reached an all-time high on Friday, driven by uncertainty over U.S. tariffs, trade tensions, and growing expectations of monetary policy easing by the Federal Reserve.
Spot gold was flat at $2,987.51 an ounce, as of 0330 GMT. Earlier in the session, safe-haven bullion hit a record high of $2,990.09, and hovered near the key milestone of $3,000.
Get a look at the day ahead in U.S. and global markets with the Morning Bid U.S. newsletter. Sign up here.
Bullion is on track for a second consecutive weekly increase, with a 2.5% gain so far.
U.S. gold futures rose 0.3% to $3,000.20.
"The risk-off market stance reflects investors' expectations that trade tensions are likely to get worse before it cools, and are turning to safe-haven gold once again as a hedge against portfolio volatility," said IG market strategist Yeap Jun Rong.
In the latest development of U.S. President Donald Trump's multi-front trade war, the European Union retaliated to blanket U.S. tariffs on steel and aluminum by imposing a 50% tax on American whiskey exports. In response, the president threatened on Truth Social to impose a 200% tariff on European wine and spirit imports.
"The psychological $3,000 level is now coming into view for gold prices, and as we approach the second quarter, where reciprocal tariffs could trigger another wave of market turbulence, gold remains a compelling safe-haven asset in an environment where alternatives are scarce," Rong said.
Trump's tariffs are widely expected to fuel inflation and economic uncertainty, and have prompted gold to reach multiple record highs in 2025.
Gold is seen as a hedge against political risks and inflation.
Investors now await the Fed's monetary policy meeting, scheduled for next Wednesday. The central bank is expected to keep its benchmark overnight interest rate in the 4.25%-4.50% range.
Non-yielding bullion thrives in a low-interest-rate environment.
Meanwhile, Russian President Vladimir Putin said on Thursday Russia supported a U.S. proposal for a ceasefire in Ukraine in principle, but sought a number of clarifications and conditions that appeared to rule out a quick end to the fighting.
Spot silver was steady at $33.80 an ounce, platinum eased 0.2% to $992.30, and palladium gained 0.7% to $964.19.
Donald Trump fervently wishes to boost domestic manufacturing. His administration is rolling out tariffs on his country’s largest trading partners to encourage companies to shift their operations to the United States. The U.S. president appears blithe about any potential economic disruption caused by such actions. Yet history shows periods of heightened policy uncertainty are often associated with weak economic growth. For example, President Franklin Roosevelt’s New Deal reforms of the 1930s ultimately failed because his economic policies discouraged companies from making new investments. Trump is making the same mistake.
In the public’s mind, Trump and Roosevelt could scarcely be more different. The Republican Trump talks up business while his Democrat forerunner openly scorned it. Yet the two have much in common. Like the current occupant of the Oval Office, Roosevelt was a great political showman. He also cultivated particular enmities. Whereas President Trump today decries economic “globalists”, Roosevelt’s bogeymen were the business elite and Wall Street titans, whom he condemned as “economic royalists” and “organized money.” He was also thick-skinned. “I welcome their hatred,” he declared of his well-heeled critics.
Roosevelt believed that by overturning the existing economic order a more just and prosperous society would emerge. Some of his economic notions were conventional for his day, such as a dislike of fiscal deficits and a fear of inflation which made him reluctant to use monetary policy. Others were kooky. For instance, the New Deal’s agricultural policy aimed to raise farm incomes by reducing food production at a time when millions were on the breadline. Roosevelt favoured “bold experimentation.” Yet a contemporary described the New Deal as a “hodgepodge of policies which are sometimes conflicting... and which create in business minds the impression that the government is in a state of great indefiniteness and confusion.”
Roosevelt initially racked up some significant achievements. His declaration of a Bank Holiday in early 1933 helped to end the financial crisis. A year later he boldly reduced the dollar’s gold value, which dispelled deflationary pressures. Yet, as George Selgin shows in his brilliant new book, “False Dawn: The New Deal and the Promise of Recovery, 1933-1947”, the president’s economic policies did not enjoy the success that many now assume. U.S. unemployment remained elevated throughout the 1930s. Investment was abnormally depressed. The economy moved up and down, in fits and starts.
Selgin ascribes the New Deal’s failure to achieve an enduring recovery to the uncertainty created by Roosevelt’s wayward economic policies. The president started out by encouraging the formation of cartels with the aim of stabilising industrial production. Later, he changed tack and ramped up antitrust actions against dominant businesses. Pro-union legislation unleashed a wave of strike activity in the second half of the decade. Roosevelt complained that corporations were engaged in what he called a “capital strike.” So, in 1936, he introduced a tax on undistributed profits, which hurt smaller businesses that had no access to the capital markets.
The president often fell out with his economic advisers. Raymond Moley, a disenchanted New Dealer, claimed that Roosevelt’s “veiled threats of punitive actions tore the fragile texture of credit and confidence upon which the very existence of business depends.” Leading business figures and economists agreed. Alfred Sloan, the head of General Motors, observed that “fear as to the future of American enterprise and the rules upon which it is conducted” was slowing recovery. John Maynard Keynes fretted that animal spirits were being snuffed out, advising the president early on that “the important but intangible state of mind, which we call business confidence, is signally lacking.”
Economists have since devised a measure of policy uncertainty, based largely on searches for key words in the published media. Unsurprisingly, researchers find a strong negative relationship between capital investment at the individual firm level and uncertainty about future government policies and regulations. The effect is more pronounced for capital-intensive businesses. Spikes in the uncertainty index tend to coincide with recessions. Periods of heightened uncertainty are also associated with market volatility – as measured by Wall Street’s “fear” gauge, the VIX Index – and stock market declines.
Over the past week, the U.S. Economic Policy Uncertainty Index has soared to an all-time peak. The level of uncertainty among small American businesses is also close to its highest level. It is not just that Trump’s lauding of tariffs goes against everything that economists have advised on trade since the days of Adam Smith, as well as the bitter experience of the early 1930s when trade barriers proliferated, and global trade collapsed. Outside observers struggle to discern the White House’s political and economic rationale for the tariffs, which countries and industries it will target, and how much others will retaliate. Indeed, even the level of tariffs and whether they will persist is in doubt. On Tuesday, Trump threatened to double the levy on imports of Canadian steel and aluminum to 50% before reversing course within hours.
Global investors are now openly wondering whether the administration desires the U.S. dollar to remain the global reserve currency or even whether overseas capital is still welcome in the United States. Then there is the question of the impact on the workforce from the potential mass expulsion of undocumented immigrants. Strained geopolitical risks are another turnoff. A recent paper from the Federal Reserve Bank of Boston shows, again unsurprisingly, that such risks are also associated with weak investment. The impact of all this on inflation and interest rates is anyone’s guess.
Shortly after the U.S. imposed the retained profits tax in 1936, the economy slumped. The S&P Index dropped 35% from peak to trough. Business investment collapsed. A survey of Illinois manufacturers found that 83% had deferred or abandoned plans for expansion. It was called the “Roosevelt Recession.” Lammot du Pont, president of the Dupont chemicals giant, complained to the National Association of Manufacturers in December 1937 that “industry is blanketed by a fog of uncertainty... the whole future is a gigantic question mark.” The same holds true today. Investment strategist Gerard Minack is warning of an adverse supply shock. Given the uncertainty already unleashed by Trump’s White House, it may already be too late to turn back.
U.S. producer prices were unchanged in February for the first time in seven months, while fewer Americans filed claims for unemployment benefits last week, pointing to a stable economy that should allow the Federal Reserve to keep interest rates steady next Wednesday.
But the calm painted by the reports from the Labor Department on Thursday could be upended by radical government spending cuts, which have pushed thousands of federal employees and contractors out of work, and an escalating trade war stemming from broad import tariffs.
Get a look at the day ahead in U.S. and global markets with the Morning Bid U.S. newsletter. Sign up here.
The aggressive policies pursued by President Donald Trump's administration have sent business and consumer confidence plummeting, and raised the chances of a recession. U.S. airlines have cut their earnings estimates noting that corporations and consumers were scaling back spending because of mounting economic uncertainty.
"No factory inflation and no worrisome job layoffs either, so there is nothing to slow the economy's advance for now," said Christopher Rupkey, chief economist at FWDBONDS.
"Nevertheless, the radical, buzz-saw cuts in spending and personnel down in Washington could eventually spread to the rest of the private economy in the months to come and it has already created enough uncertainty for company CEOs to potentially halt the economy's forward progress starting in the second quarter."
The unchanged reading in the producer price index for final demand last month, the first since July, followed an upwardly revised 0.6% increase in January, the Labor Department's Bureau of Labor Statistics said.
Economists polled by Reuters had forecast the PPI climbing 0.3% after a previously reported 0.4% gain in January. In the 12 months through February, the PPI advanced 3.2% after rising 3.7% in January.
But as in the consumer price index data released on Wednesday, there were unfavorable details in the PPI components that go into the calculation of the Personal Consumption Expenditures (PCE) price indexes, tracked by the U.S. central bank for its 2% inflation target.
Goods prices rose 0.3%, with a 53.6% surge in wholesale egg prices accounting for two-thirds of the increase. Goods prices rose 0.6% in January. A raging bird flu outbreak is driving egg prices higher, boosting the cost of food. Wholesale food prices shot up 1.7% after increasing 1.0% in January.
Energy prices fell 1.2%. Excluding the volatile food and energy components, goods prices jumped 0.4%, the largest rise in two years. The so-called core goods prices gained 0.2% in January. Economists said it was likely that companies were raising prices ahead of tariffs.
President Donald Trump has ignited a trade war, raising tariffs on goods from China to 20%, with Beijing retaliating with duties of its own.
Trump imposed a new 25% duty on Canadian and Mexican imports, before providing a one-month exemption for goods that meet the rules of origin under the U.S.-Mexico-Canada Agreement on trade. Enhanced steel and aluminum tariffs drew swift retaliation from Europe and Canada.
Trump on Thursday threatened a 200% tariff on wine, cognac and other alcohol imports from Europe. Economists expect the deluge of tariffs to impact upcoming inflation data.
Stocks on Wall Street traded lower. The dollar advanced against a basket of currencies. U.S. Treasury yields fell.
SERVICES PRICES FALL
The cost of services fell 0.2% amid a 1.4% decline in margins for machinery and vehicle wholesaling, after rising 0.6% in January. There were also decreases in the margins for food and alcohol, automobiles and automobile parts as well as apparel, footwear, and accessories retailing.
But prices for hospital inpatient care jumped 1.0%, while the cost of outpatient services rebounded 0.3%. Portfolio management fees rose 0.5%, while airline fares were unchanged. Hotel and motel accommodation prices dipped 0.1%.
Portfolio management fees, healthcare, hotel and motel accommodation and airline fares are among the components that go into the calculation of the core PCE price index.
Economists estimated the core PCE price index increased 0.3% in February, with high odds of rounding up to 0.4%. Core PCE inflation gained 0.3% in January. It was forecast rising 2.7% year-on-year after advancing 2.6% in January.
The Fed is expected to keep its benchmark overnight interest rate in the 4.25%-4.50% range next Wednesday, having reduced it by 100 basis points since September.
Financial markets expect the Fed to resume cutting borrowing costs in June after it paused its easing cycle in January amid a darkening economic outlook. The policy rate was hiked by 5.25 percentage points in 2022 and 2023 to tame inflation.
A separate report from the Labor Department showed initial claims for state unemployment benefits slipped 2,000 to a seasonally adjusted 220,000 for the week ended March 8.
Risks for the labor market are, however, skewed to the downside. Thousands of federal government workers, mostly on probation, have been fired by tech billionaire Elon Musk's Department of Government Efficiency, or DOGE, an entity created by Trump to drastically shrink the government.
Unions representing some of the civil servants have challenged the layoffs, resulting in reinstatements. Agencies have a Thursday deadline to submit plans for large-scale layoffs. The federal government upheaval has not yet significantly filtered through to official labor market data.
A federal judge on Thursday ordered six agencies, including Veterans Affairs, to reinstate thousands of recently hired employees who have been fired.
A separate unemployment compensation for federal employees (UCFE) program, which is reported with a one-week lag, showed applications easing 54 to 1,580.
"With all the gyrations between DOGE, agency cuts, and the courts, the number of federal employees already going without a paycheck is unclear," said Andrew Stettner, a senior fellow at the Century Foundation. "What we know ... is that the cruel way in which Trump is cutting government payrolls is making it hard for laid-off federal employees to get benefits."
Spending cuts have, however, impacted contractors and nonprofits, lifting claims in Washington D.C., Maryland and Virginia.
The number of people receiving benefits after an initial week of aid, a proxy for hiring, decreased 27,000 to a seasonally adjusted 1.870 million during the week ending March 1, the claims report showed.
Cable outlet Newsmax Media has paid $40 million to settle allegations it defamed Smartmatic by reporting false claims that the voting machine company helped rig the 2020 U.S. election for Joe Biden over Donald Trump, according to a regulatory filing.
The companies settled privately last year, but the amount was disclosed in a Newsmax investor document dated March 7.
The Reuters Daily Briefing newsletter provides all the news you need to start your day. Sign up here.
A Smartmatic representative said in a statement the company could not discuss details of the deal but that it is looking forward to taking Fox News to trial over similar claims about its election coverage.
Newsmax representatives did not immediately respond to emails seeking comment.
Smartmatic sued Newsmax in 2021, alleging it broadcast damaging misinformation falsely claiming the company switched votes in the 2020 presidential election, that its machines were hacked and that it was funded by corrupt dictators.
Smartmatic alleged that Newsmax profited from its false reporting. Trump amplified Newsmax's reporting on social media and the broadcaster's audience jumped 10-fold after the election, vaulting it over cable news rivals such as CNBC and Fox Business, according to Nielsen Ratings.
Newsmax said it had a First Amendment right to report claims by Trump and his supporters, which were often made in court filings challenging the election.
The company clarified its reporting about Smartmatic in December 2020 and invited Smartmatic representatives to come on air to explain their side of the story to Newsmax viewers. Smartmatic did not accept that invitation.
Smartmatic did not publicly estimate the damages at stake, but Newsmax has told the court the voting machine company was seeking $400 million to $600 million.
Smartmatic has sued Fox News in New York for $2.7 billion over the conservative network's 2020 election coverage, the case referred to in Smartmatic's statement on Thursday.
Fox (FOXA.O) last year and agreed to settle defamation claims by Dominion Voting Systems for $787.5 million, which legal experts said was the biggest defamation settlement by a U.S. media company in history.
The United Auto Workers union said on Thursday it filed unfair labor practice charges against Volkswagen (VOWG.DE), as the automaker cut jobs at a factory in Tennessee where the union is negotiating its first contract after winning an election there last year.
"The UAW has notified the Trump Administration of Volkswagen’s unacceptable, anti-union, anti-worker, and anti-American conduct," UAW President Shawn Fain said in a statement.
Stay up to date with the latest news, trends and innovations that are driving the global automotive industry with the Reuters Auto File newsletter. Sign up here.
A spokesperson for Volkswagen said it is cutting production in Tennessee to a two-shift model out of caution for lowered electric vehicle demand. Workers at the Tennessee plant assemble the ID.4 electric SUV.
The Germany-based automaker is offering production employees a "voluntary attrition program," including a severance package, retirement options and benefits, the spokesperson said.
"We remain committed to our team members, our customers, and our presence in Chattanooga. This change supports that commitment," the company said in a statement.
The auto union won an election at the Chattanooga, Tennessee factory in April, making it the first auto plant in the South to unionize via election since the 1940s, and the first foreign-owned auto plant in the South to do so. Since the election, the union and company have been negotiating the first labor contract there.
Volkswagen has been cutting jobs globally as it confronts weakening demand and intensifying competition from Chinese automakers.
Late last year, the car company announced plans to slash more than 35,000 jobs after a bitter battle with unions in Europe.
In the U.S., President Donald Trump's 25% tariffs on imports from Mexico and Canada pose a more imminent threat. Trump has allowed vehicles that comply with the United States-Mexico-Canada Agreement rules of origin to avoid these added duties until early April.
Volkswagen said last week its North American vehicles are made in compliance with the USMCA.
Among German carmakers, the Volkswagen Group is the most exposed to Trump's tariff threats on Mexico and Canada. Its Audi and Porsche brands have no U.S. manufacturing base, its VW passenger car brand's U.S. sales consist mainly of imports from its Mexican plant, and its battery cell plant under construction in Canada was set to deliver batteries to the United States.