Virginia unemployment spike ‘an economic shock,’ economist says

Virginia’s initial unemployment claims rose 46.8% last week as federal contractors and agencies continue to lay off workers, the state reported Thursday.

For the week ending May 10, 3,992 people filed initial unemployment insurance claims, an increase from the previous week’s 2,720 claims and a 67.3% increase over a comparable week last year (2,386), according to data released Thursday by the Virginia Department of Workforce Development and Advancement, also known as Virginia Works.

Economist Bob McNab, director of Old Dominion University‘s Dragas Center for Economic Analysis and Policy, said data on initial claims can often fluctuate week-to-week. However, he said if you continue to see initial claims rise year-over-year, it is a sign that the state is seeing more unemployed people flow into the unemployment claims system.

“One week does not make a trend, but several weeks lead you to suspect that the job market in Virginia is weakening,” McNab said.

Earlier this week, the University of Virginia’s Weldon Cooper Center for Public Service estimated that the state could lose 32,000 jobs this year, raising the monthly unemployment rate for the state to an average of 3.9% in 2025 and up to 4.7% in early 2026.

In Thursday’s unemployment report, Virginia Works said that the top five job-losing industries last week were manufacturing (1,186); professional, scientific and technical services (465); administrative and support and waste management (274); health care and social assistance (198) and retail trade (189).

Virginia also has seen major layoff announcements outside of the federal government and government contracting in recent weeks. Earlier this month, Georgia-Pacific told 554 employees they would lose their jobs at the Emporia plywood mill, which the company is closing in response to a 30-year low in existing home sales.

More importantly for McNab, however, were the 18,144 continued claims — which were 1.4% higher than the previous week’s 17,896 and were 14.5% higher than the comparable week of last year (15,847).

McNab believes at least some of the unemployment numbers can be attributable to President Donald Trump’s administration cutting contracts and tens of thousands of federal jobs in an effort to slash federal spending. More than 321,500 federal workers live in Virginia, according to data from the 2023 Census Bureau’s American Community Survey, although about 190,000 federal jobs are actually based in the commonwealth.

McNab said the Virginia economy is an ecosystem “significantly influenced by federal spending and employment,” including businesses that perform contract work for the federal government.

This week, Leesburg government contractor Pantheon Data laid off 155 workers, including 33 in Virginia, after the U.S. Navy canceled its $170 million contract under pressure from the federal Department of Government Efficiency, or DOGE.

Last week, 3,800 Virginia residents who were employed in professional, scientific and technical services filed continuing unemployment claims.

“We don’t have direct data that suggests that these are a result of the changes to federal civilian employment and the termination of grants and contracts, but we would suspect that disruptions in federal funding and employment would bleed into professional technical, scientific and technical services,” McNab said.

Rounding out the top four sectors in continued claims were administrative and support and waste management (2,249); health care and social assistance (1,612); retail trade (1,420) and manufacturing (1,159).

McNab speculated that the reduction in health care costs might be in anticipation of cuts to Medicaid, a joint federal and state program that helps cover medical costs for low-income Americans. House Republican leaders hope to cut $1.5 trillion in spending to offset the cost of Trump’s tax cuts, although Democrats in the House and Senate oppose the move. In March, the nonpartisan Congressional Budget Office released an analysis that indicated those budget goals can’t be met without cutting Medicaid spending.

McNab said it is hard to predict whether the unemployment data will continue to get worse in the coming months due to challenges predicting federal trade and spending, as Trump continues to pause and change tariff policies.

But the economist said uncertainty is a problem and that employers who are unable to make future plans are much more reluctant to hire and more likely to shed jobs at the margin to insulate themselves.

“I think we are starting to see the beginnings of an economic shock being baked into the Virginia economy,” McNab said. “That is the changes to tariffs, the potential impacts on employers with regards to uncertainty, the reductions in federal employment and the termination of grants and contracts as a whole appear to have not only undermined consumer confidence and business confidence, but are leading to a weakening of labor markets across the state.”