Americans filed new claims for unemployment benefits at the lowest level in 57 years last week, the Labor Department reported on Thursday, in the latest sign that a labor market many economists expected to crack is instead holding firm. Worker productivity also grew faster than expected in the third quarter, pushing labor costs down for the first time in more than a year, a combination that gives the Federal Reserve welcome breathing room as it weighs its next move on interest rates.
The Numbers Behind the 57-Year Low
Initial claims for state unemployment benefits fell by 6,000 to a seasonally adjusted 189,000 for the week ended October 31, the Labor Department said on Thursday. Economists polled by Reuters had forecast 196,000 claims for the latest week, so the reading came in comfortably better than expected.
The figure matched the 189,000 level touched in mid-July, which was the lowest reading since 1969. Claims have stayed mostly below 200,000 since mid-September, a stretch of unusual steadiness for a weekly series that often jumps around. No state reported an increase in unadjusted claims of more than 1,000 last week, according to the report.
Low layoffs, thanks to strong domestic demand and profit growth, are anchoring the labor market, Reuters reported. It is the same low-hire, low-fire pattern that has defined the American jobs market for much of this year: workers who have a job are unusually safe in it, while those without one can face a long search.
Not everyone reads the numbers the same way. Some economists viewed the low level of jobless claims as a function of a smaller labor force amid an immigration crackdown, rather than fewer job cuts, Reuters reported. Others believed the labor market could be tightening. The government reported this week that there were 1.06 open jobs for every unemployed person in September, up from 1.02 in August, a small but telling shift toward workers having more options.
The picture is less rosy for people already out of work. The number of people receiving unemployment benefits after an initial week of aid, a proxy for hiring, increased by 23,000 to a still-low seasonally adjusted 1.718 million during the week ended October 24. But continuing claims do not include recent college graduates and others with little or no work history, and some people may have exhausted their eligibility, which is limited to 26 weeks in most states.
Productivity Jumps, Labor Costs Fall
A separate report from the Labor Department's Bureau of Labor Statistics showed nonfarm productivity, which measures hourly output per worker, increased at a 3.6 percent annualized rate in the third quarter after advancing at an upwardly revised 2.1 percent pace in the second quarter.
Economists polled by Reuters had forecast productivity increasing at a 2.8 percent rate, after a previously reported 1.4 percent growth pace in the second quarter. Productivity is volatile on a quarter-on-quarter basis, but it grew at a 2.1 percent rate from a year ago.
Unit labor costs, the price of labor per single unit of output, fell at a 0.7 percent rate last quarter. That was the first decline since the second quarter of 2025 and followed an upwardly revised 1.9 percent growth pace in the second quarter. Economists had forecast labor costs rising at a 0.6 percent pace after growing at a previously reported 1.2 percent rate. Labor costs grew at a 2.4 percent rate from a year ago. The data also showed workers' share of economic output falling to new lows.
The surge in productivity depressed labor costs and reinforced the view of policymakers and economists that the labor market was not a source of inflation. It followed data last week showing a moderate increase in the Employment Cost Index, the broadest measure of labor costs, in the third quarter.
Economists and policymakers are hoping that an artificial intelligence spending blitz will translate into significant productivity gains. For now, though, the evidence points elsewhere. "AI has yet to make a noticeable contribution. Productivity gains have been fairly consistent over the past several years," said Stephen Stanley, chief U.S. economist at Santander US Capital Markets. "What we have seen is a transformation of the economy that came out of the trauma of the pandemic. Businesses had to figure out new ways to operate during the pandemic and many of their improvisations yielded lasting efficiency improvements."
Hiring Plans Surge, But Mostly Seasonal
Other data released on Thursday pointed in the same direction: employers are holding on to staff and planning for a busy holiday season, but they are not rushing to add permanent workers. A separate report from global outplacement firm Challenger, Gray and Christmas showed U.S.-based employers announced 43,994 job cuts in October, up 2 percent from September. Planned layoffs dropped 71 percent compared with October 2025, and despite the rise over the month, layoffs were the lowest for any October since 2023.
Employers announced plans to hire 444,692 workers last month, a 57 percent jump from October 2025. Hiring plans were the highest for any October since 2009, and likely mostly seasonal jobs. "Employers are holding on to the workers they have heading into the holidays, and the hiring they are announcing is largely short-term, seasonal work," said Andy Challenger, chief revenue officer at Challenger, Gray and Christmas. "Companies want the flexibility to meet holiday demand without adding permanent headcount."
The reluctance to increase permanent hiring means some unemployed people are experiencing long periods of joblessness, even while the headline numbers look strong. Separate data from payroll firm ADP showed private employers added 86,000 jobs in October, above expectations of 69,000, and job openings climbed to 7.52 million in September, the highest since May.
What This Means
For the Federal Reserve, Thursday's data is good news on two fronts. Benign wage inflation gives the central bank more latitude to focus on rising price pressures stemming from the U.S.-Israeli war with Iran, rather than worrying that a tight labor market will push wages and prices higher on its own.
The U.S. central bank last week left its benchmark overnight interest rate in the 3.75 to 4.00 percent range while acknowledging that inflation "remains elevated." Economists expect the Fed to raise borrowing costs in December, and Thursday's figures do little to change that expectation. "The Fed will take some comfort from continued solid productivity gains and subdued unit labor costs, though any evidence that the job market is starting to tighten would weigh toward additional rate hikes," said Sal Guatieri, a senior economist at BMO Capital Markets.
The data landed in a charged political moment. Anger over the conflict in the Middle East, now in its ninth month, cost President Donald Trump's Republican Party control of Congress in this week's midterm elections, according to Reuters. The war has driven up gasoline prices and pushed the president's approval ratings down.
On Wall Street, the reaction on Thursday was muted. U.S. stocks were lower, the dollar was steady against a basket of currencies, and U.S. Treasury yields fell, as investors digested the strong labor data alongside the political fallout from the midterms.
What Happens Next
The next big test comes on Friday, when the government releases its closely watched employment report for October. The claims report falls outside that survey period, but it sets an encouraging backdrop. Nonfarm payrolls likely increased by 65,000 jobs last month after rising 29,000 in September, a Reuters survey of economists showed. The unemployment rate is forecast to stay unchanged at 4.2 percent, although the Chicago Fed is projecting the jobless rate at 4.14 percent, which would round down to 4.1 percent.
Beyond Friday, attention turns to the Federal Reserve's December meeting, where economists expect borrowing costs to rise again. If the jobs report confirms Thursday's picture of a resilient but not overheating labor market, the Fed will have room to focus on the inflation pressures coming from the war and from energy prices, without fearing that wage growth will add fuel to the fire.
The holiday hiring season will also provide a reality check. If the seasonal hiring plans announced in October turn into real paychecks, the labor market's remarkable run could continue into 2027. If the war escalates or hiring stalls, the same data that looks so strong today could quickly look very different.
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