New filings for U.S. unemployment benefits declined unexpectedly last week, although economists cautioned that the drop likely reflects ongoing difficulties in adjusting the data for seasonal distortions common at this time of year.
The labor market continues to operate in what policymakers and analysts describe as a “low-hire, low-fire” environment. Economists say aggressive trade and immigration policies under U.S. President Donald Trump have dampened both labor demand and supply. At the same time, companies remain uncertain about future staffing needs as heavy investment in artificial intelligence continues to restrain hiring.
“The picture of the labor market from the claims data, as noisy as it has been in recent weeks, is one of at least stable labor market conditions,” said Nancy Vanden Houten, lead U.S. economist at Oxford Economics.
According to the U.S. Labor Department, initial claims for state unemployment benefits fell by 9,000 to a seasonally adjusted 198,000 in the week ended January 10. Economists surveyed by Reuters had expected 215,000 new claims.
Seasonal adjustment remains a major challenge around the year-end holidays and the start of the new year. On an unadjusted basis, claims jumped by nearly 32,000 to 330,684 last week. Government models designed to smooth seasonal swings had pointed to a much larger increase in applications.
“There has been an apparent seasonal pattern in seasonally adjusted data where claims tend to bottom in January and peak sometime in the summer,” said Gisela Young, an economist at Citigroup. She added that this pattern could reappear in the coming weeks and that residual seasonality may only be corrected when factors are updated later in the spring.
Signs of labor market stagnation were echoed in the Federal Reserve Beige Book released Wednesday, which showed employment was “mostly unchanged” in early January. The central bank noted that several regions reported greater use of temporary workers, allowing firms to remain flexible amid uncertainty. When hiring did occur, it was largely to replace departing staff rather than create new positions.
Financial markets reacted calmly to the data, with U.S. stocks trading higher, the dollar strengthening against a basket of currencies, and Treasury yields moving in mixed directions.
Job market remains tough for seekers
Government data released last week showed nonfarm payrolls rose by just 50,000 in December. Total job growth in 2025 reached 584,000—the weakest annual gain in five years—averaging roughly 49,000 jobs per month. The unemployment rate edged down to 4.4% from 4.5% in November, but long-term unemployment remains elevated.
Continuing claims, which track the number of people receiving benefits beyond an initial week and serve as a proxy for hiring conditions, fell by 19,000 to a seasonally adjusted 1.884 million in the week ended January 3. Economists said these figures were also likely affected by seasonal adjustment issues.
Public confidence in the labor market has been eroding, particularly among recent college graduates and new entrants who are ineligible for unemployment benefits and are struggling amid weak hiring.
“It is more difficult to find a job now than it was during the first few years of recovery from the COVID-19 pandemic through the first quarter of 2025,” said Stuart Hoffman, senior economic adviser at PNC Financial.
Economists widely expect the Federal Reserve to keep its benchmark interest rate in the 3.50%–3.75% range at its January 27–28 meeting, though rate cuts are anticipated later this year to help protect the labor market. Recent data showed inflation pressures were stable in December, even as consumers faced higher food prices and rents.
Economists also expect upcoming data to show that core personal consumption expenditures inflation rose 0.2% in November, matching October’s pace. The PCE index, closely watched by the Fed for its 2% inflation target, was delayed due to a lengthy federal government shutdown.
“The Fed will likely hold policy steady until June, when we expect the first of two rate cuts this year,” Vanden Houten said. “As inflation risks begin to ease, policymakers are becoming more focused on labor market conditions and have greater flexibility to respond if weakness intensifies.”
