New filings for U.S. unemployment benefits rose modestly last week, reflecting limited layoffs, even as overall demand for labor remained weak. Many companies continue to extract more output from their existing workforce rather than expanding hiring.
At the same time, worker productivity surged at its fastest pace in two years during the third quarter, according to fresh data released Thursday by the U.S. Labor Department. The acceleration, partly linked to rising investment in artificial intelligence, helped push unit labor costs lower and reinforced what economists describe as a “jobless expansion.” This productivity jump followed strong overall economic growth in the third quarter.
“Companies are increasingly able to do more with fewer workers, which strengthens the case for a jobless expansion,” said Matthew Martin, senior U.S. economist at Oxford Economics. He added that productivity growth will be critical in shaping both the economy’s long-term growth potential and inflation outlook.
Initial claims for state unemployment benefits increased by 8,000 to a seasonally adjusted 208,000 for the week ended January 3. Economists surveyed by Reuters had expected 210,000 claims. Recent data have been volatile due to seasonal adjustment issues around the holidays, but layoffs remain low by historical standards.
Employers have largely avoided large-scale layoffs, despite uncertainty linked to tariffs and the growing use of AI in certain roles. Instead, cautious hiring has left the labor market in a state of stagnation rather than contraction.
Separate figures from outplacement firm Challenger, Gray & Christmas showed announced job cuts by U.S.-based employers jumped 58% to a five-year high of 1.206 million in 2025. Most of these planned reductions were tied to cost-cutting by the federal government and technology companies, where layoffs were driven by AI adoption and previous overhiring.
Hiring plans weakened sharply, falling 34% to 507,647 last year, the lowest level since 2010. Sluggish hiring has contributed to longer periods of unemployment for many job seekers.
Continuing claims, which track the number of people receiving benefits after an initial week and serve as a proxy for hiring conditions, rose by 56,000 to 1.914 million in the week ended December 27. Meanwhile, government data released Wednesday showed job openings fell to a 14-month low in November, with just 0.91 openings per unemployed worker, the weakest ratio since March 2021.
The weekly claims figures do not factor into December’s employment report, due for release Friday. Economists expect nonfarm payrolls to have increased by about 60,000 jobs in December, after a 64,000 gain in November, according to a Reuters poll. Attention will likely center on the unemployment rate, which is forecast to have edged down to 4.5% after hitting a four-year high of 4.6% in November.
Market reaction was cautious, with U.S. stocks opening lower, the dollar strengthening against a basket of currencies, and U.S. Treasury yields moving higher.
In a separate report, the Bureau of Labor Statistics said nonfarm productivity rose at an annualized rate of 4.9% in the third quarter, the fastest pace since late 2023. That followed an upwardly revised 4.1% increase in the prior quarter and exceeded expectations for a 3.0% gain. Productivity was up 1.9% from a year earlier.
The strength in productivity helps explain the gap between solid GDP growth and muted job creation. The U.S. economy expanded at a robust 4.3% annualized rate in the third quarter, while private-sector job growth averaged just 55,000 per month in the three months through October.
Lower unit labor costs also improved the inflation outlook. Labor costs fell at a 1.9% annualized pace in the third quarter and were up only 1.2% from a year earlier.
“Since labor is a key driver of services inflation, this is encouraging news for the inflation outlook,” said Paul Ashworth, chief North America economist at Capital Economics. Economists said the data give the Federal Reserve greater flexibility to consider interest rate cuts later this year, even if no move is expected this month.
