The number of Americans filing for unemployment benefits fell to an 11-month low last week, signaling labor market stability despite a slowdown in hiring that has left some workers facing prolonged unemployment.
This cooling labor market could give the Federal Reserve room to keep interest rates steady in January, even as inflation remains elevated.
“The Fed says rate cuts from here on out will be gradual,” said Carl Weinberg, chief economist at High Frequency Economics.
“Today’s claims data say that they need not be in a rush to ease monetary conditions.”
Initial claims for state unemployment benefits dropped by 10,000 to a seasonally adjusted 201,000 for the week ending Jan. 4, the lowest level since February 2024, according to the Labor Department.
Economists had forecast 218,000 claims.
The report was released early due to a federal holiday on Thursday honoring former President Jimmy Carter, who passed away on Dec. 29.
Though claims are volatile at the start of the year, they remain consistent with low layoffs, reflecting labor market resilience.
The four-week moving average of claims, which smooths fluctuations, fell by 10,250 to 213,000.
Unadjusted claims rose notably in New York, Georgia, and Texas but dropped in Michigan, Illinois, New Jersey, Ohio, and Connecticut.
The dollar gained against a basket of currencies, and U.S. Treasury yields rose.
Labor Market and Fed Policy
Labor market stability was underscored by an increase in job openings in November, with 1.13 vacancies per unemployed person, up from 1.12 in October.
However, sluggish hiring has extended unemployment durations for some workers.
Private payrolls increased by 122,000 jobs in December, below expectations, according to ADP data.
The Federal Reserve lowered its benchmark rate in December but forecast fewer rate cuts this year than anticipated.
Nonfarm payrolls likely rose by 160,000 in December, according to a Reuters survey, following a 227,000-job increase in November.
The unemployment rate is expected to remain steady at 4.2%.