The number of Americans filing new claims for unemployment benefits declined last week, reinforcing a picture of a stable labor market even as hiring momentum has slowed considerably.
Initial claims for state unemployment benefits dropped by 2,000 to a seasonally adjusted 197,000 for the week ended October 3, according to data released Thursday by the Labor Department. Economists surveyed by Reuters had anticipated 200,000 claims.
This marks the fourth consecutive week that claims have hovered near 57-year lows, underscoring a labor market characterized by low layoffs and cautious hiring. Companies appear reluctant to shed workers, but they are also not aggressively expanding their payrolls.
The latest claims data follows a disappointing September jobs report, which showed U.S. employers added only 29,000 nonfarm jobs—far below the 84,000 gain expected by economists. Moreover, payroll growth for prior months was revised downward: July's increase was cut from 21,000 to a decline of 10,000, and August's gain was trimmed to 133,000 from 162,000. Together, these revisions reduced payroll gains for those two months by 60,000.
Economists attribute the tepid hiring to a shrinking labor pool, partly due to retirements and tighter immigration policies, as well as lingering uncertainty over trade tariffs and geopolitical tensions. Despite these headwinds, layoffs remain historically low. Challenger, Gray & Christmas reported that planned job cuts by U.S.-based employers fell 18% in September to 43,281, and announced layoffs were down 20% from a year earlier. For the first nine months of the year, employers have announced 573,195 layoffs, a 39% drop from the same period in 2025.
Hiring intentions did show some improvement in September, with companies planning 90,787 hires compared with just 12,325 in August, though that figure remained 23% below a year earlier. The combination of strong profit growth and resilient stock markets has encouraged companies to hold onto their existing workforce, but uncertainty surrounding tariffs and the US-Israeli conflict with Iran has tempered more aggressive recruitment.
Minutes from the Federal Reserve's September meeting indicated that officials viewed labor market conditions as stable and close to maximum employment, with risks broadly balanced. The Fed raised its benchmark interest rate by 25 basis points last month to a range of 3.75%-4.00%, its first hike in three years. However, the weak September payroll report and cooler inflation readings have led markets to scale back expectations for another hike this month, with many economists now looking for a move in December.
While the headline claims figures are encouraging, the report also showed that continued claims—those receiving benefits beyond the first week—rose by 17,000 to 1.716 million for the week ended September 26. Although still relatively low, this increase suggests that some unemployed individuals are finding it harder to secure new positions. The median duration of unemployment reached 11.5 weeks in September, close to a 4-1/2-year high.
“The labor market is stable, but it’s not picking up. It’s soft,” said Claudia Sahm, a former Federal Reserve analyst and chief economist at New Century Advisors, in an earlier report. “The labor market is OK, it’s just who you are in the labor market that matters, and more than usual.”
This leaves the labor market in an unusual position: layoffs remain historically subdued, but companies are also hiring cautiously. The combination has so far prevented a sharp deterioration in employment, while making the pace of future job creation increasingly uncertain.
This article is for informational purposes only and does not constitute financial advice.
