Just 198,000 Americans filed jobless claims last week, fewer than expected as layoffs remain low

Unemployment Claims Drop Unexpectedly as Labor Market Sends Mixed Signals

The number of Americans filing for unemployment benefits fell unexpectedly last week, highlighting the complex nature of the current labor market that continues to display resilience in some areas despite broader concerns about deteriorating conditions.

Applications for jobless aid dropped by 9,000 to 198,000 for the week ending January 10, according to data released Thursday by the Labor Department. The figure came in significantly below economists’ expectations of 215,000, as surveyed by FactSet.

Weekly unemployment claims, which serve as a real-time indicator of layoff activity across the country, remain near historic lows despite mounting evidence of a broader cooling in the labor market.

This latest report follows a disappointing December jobs report released last week, which showed employers added just 50,000 positions, barely changed from November’s downwardly revised 56,000 gain. The unemployment rate did tick down slightly to 4.4% from 4.5%, marking its first decline since June.

The conflicting signals—low unemployment claims alongside weak hiring—paint a picture of a labor market that appears increasingly stagnant rather than collapsing. Businesses seem reluctant to let go of existing workers even as they hesitate to bring on new employees.

Further evidence of this trend emerged in the Labor Department’s job openings report last week, which showed available positions dropped to 7.1 million in November from 7.4 million in October. The simultaneous decrease in both job openings and layoffs points to what economists describe as a “low hire, low fire” environment.

“Companies are being cautious in both directions,” said Mark Hamrick, senior economic analyst at Bankrate. “They’re not aggressively adding to payrolls, but they’re also holding onto workers they’ve invested in training and who would be difficult to replace if conditions improve.”

The cooling labor market appears to be influenced by several factors, including uncertainty stemming from the Trump administration’s tariff policies and the lingering effects of aggressive interest rate hikes implemented by the Federal Reserve in 2022 and 2023 to combat inflation.

Recognizing the softening job market, the Federal Reserve cut its benchmark lending rate by a quarter-point last month, marking its third consecutive reduction. Fed Chair Jerome Powell expressed growing concern that the labor market might be even weaker than current data suggests.

Powell indicated that recent employment figures could be revised downward by as many as 60,000 jobs, which would mean the economy has actually been shedding an average of about 25,000 jobs per month since spring, when the Trump administration implemented sweeping import taxes.

Several major corporations have announced workforce reductions recently, including UPS, General Motors, Amazon, and Verizon, suggesting that the trend of corporate caution may continue in the coming months.

Thursday’s report also showed that the four-week moving average of jobless claims, which smooths out week-to-week volatility, decreased by 6,500 to 205,000. The total number of Americans receiving unemployment benefits fell by 19,000 to 1.88 million for the week ending January 3.

Economists remain divided on what these mixed signals mean for the broader economy. Some view the low layoff rate as a sign of underlying economic strength that could help avoid a more serious downturn, while others worry that the persistent weakness in hiring will eventually translate into broader economic contraction.

“The labor market is clearly losing momentum, but it’s not falling off a cliff,” said Diane Swonk, chief economist at KPMG. “The question is whether we’re seeing a gradual cooling that allows for a soft landing, or just the early stages of a more significant deterioration.”

For now, policymakers and market observers will continue monitoring weekly jobless claims closely, looking for any signs that the current “low hire” environment might shift into a more troubling “high fire” scenario that would indicate a deeper economic problem.