US Weekly Jobless Claims Drop to Lowest Level in 11 Months by Reuters

Written by Lucia Mutikani

WASHINGTON (Reuters) – The number of Americans filing new claims for unemployment benefits fell to an 11-month low last week, a sign of stabilization in the labor market, although a hiring slowdown has led some laid-off workers to experience long bouts of unemployment.

Signs of a steady slowdown in the labor market may allow the Federal Reserve to keep interest rates unchanged in January against the backdrop of high inflation. The US central bank last month expected a shallower pace of interest rate cuts this year than expected in September when it launched a policy easing cycle.

“The Fed says interest rate cuts from now on will be gradual,” said Carl Weinberg, chief economist at High Frequency Economics. “Today’s claims data suggests they don’t need to rush to ease monetary conditions. Fed policy aims to support the economy and labor market before a recession takes shape.”

The Labor Department said Wednesday that initial claims for state unemployment benefits fell by 10,000 to a seasonally adjusted level of 201,000 for the week ending Jan. 4, the lowest level since February 2024. Economists polled by Reuters had expected 218,000 claims in the latest week.

The report was published one day before federal government offices were to close on Thursday in honor of former President Jimmy Carter, who died on December 29.

Although claims tend to be volatile at the turn of the year, they have bounced around levels associated with lower layoffs that support the labor market and broader economy. The four-week average of claims, which strips out seasonal fluctuations from the data, fell by 10,250 to 213,000 last week.

Unadjusted claims jumped to 22,430 in New York. There were also notable increases in Georgia and Texas. But filings fell by 7,140 in Michigan, which saw a rise in filings related to layoffs in the auto industry.

There were also significant declines in Illinois, New Jersey, Ohio and Connecticut.

The dollar rose against a basket of currencies. US Treasury yields were higher.

Stable labor market

The stability of the labor market was confirmed by government data released on Tuesday that showed an increase in job openings in November, with 1.13 vacancies for every unemployed person, up from 1.12 in October. Uncertainty about the impact of policies proposed by the incoming administration of President-elect Donald Trump is also expected to lead the Fed to pause interest rate cuts this month.

Trump has pledged to cut taxes, impose or increase tariffs on imports, and deport millions of illegal immigrants, plans that economists have warned will lead to increased inflation.

The central bank cut its benchmark overnight interest rate by 25 basis points to a range of 4.25%-4.50% at its policy meeting in December. However, the Fed expects only two interest rate cuts this year compared to the four it expected in September. The interest rate was raised by 5.25 percentage points in 2022 and 2023 to curb inflation.

While layoffs have remained low by historical standards, hiring has slowed, with ADP National Employment on Wednesday showing private payrolls increased by 122,000 jobs in December after rising by 146,000 in November. Economists had expected private sector employment to rise by 140,000.

The hiring slowdown means that some unemployed people face long periods of unemployment. The number of people receiving benefits after an initial week of aid, an indicator of employment, rose by 33,000 to a seasonally adjusted level of 1.867 million during the week ending Dec. 28, the claims report showed.

Part of the rise in so-called continuing claims is due to difficulties in ruling out seasonal fluctuations. With average unemployment nearing a three-year high in November, economists are hoping for an improvement when the government publishes its closely watched December employment report on Friday.

A Reuters survey showed that nonfarm payrolls likely increased by 160,000 jobs in December, as support from the end of disruptions from hurricanes and strikes by factory workers at Boeing and another airline faded.

The economy added 227,000 jobs in November. The unemployment rate is expected to remain unchanged at 4.2%.