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The number of Americans filing new applications for unemployment benefits rose moderately last week amid a relatively low number of layoffs, though demand for labor remained sluggish, with businesses squeezing more output from their existing workforce.
Worker productivity grew at its fastest pace in two years in the third quarter, other data from the Labor Department showed on Thursday, suggesting the much anticipated artificial intelligence-driven boom was underway. The productivity surge, which depressed unit labor costs, underscored what economists have termed a jobless economic expansion. It followed on the heels of robust economic growth in the third quarter.
“Firms are successfully doing more with less labor,” said Matthew Martin, senior U.S. economist at Oxford Economics. “Productivity will be key to determining the economy’s speed limit and inflationary dynamics. If productivity growth continues to accelerate … economic growth can pick up without causing unwanted inflation.”
Initial claims for state unemployment benefits rose 8,000 to a seasonally adjusted 208,000 for the week ended January 3. Economists polled by Reuters had forecast 210,000 claims for the latest week. Claims have been choppy in recent weeks amid challenges adjusting the data for seasonal fluctuations around the year-end holiday season. Through the volatility they have remained at levels consistent with low layoffs.
Employers have been reluctant to boost headcounts amid tariff-related uncertainty and integration of AI in some job roles, but they have not engaged in mass firings of workers, keeping the labor market in a state of paralysis.
While a separate report from global outplacement firm Challenger, Gray & Christmas showed layoffs announced by U.S.-based employers jumped 58% to a five-year high of 1.206 million in 2025, cost-cutting by the federal government and technology companies accounted for the bulk of the planned reductions.
Job cuts in the technology sector were attributed to AI and overhiring in prior years.Â
Planned hiring by businesses fell 34% to 507,647 positions last year, the lowest level since 2010. Lackluster hiring means more unemployed people are experiencing long bouts of joblessness.
The number of people receiving unemployment benefits after an initial week of aid, a proxy for hiring, increased 56,000 to a seasonally adjusted 1.914 million during the week ended December 27, the claims report showed.
The government reported on Wednesday that there were 0.91 job openings for every unemployed person in November, the lowest level since March 2021. The figure stood at 0.97 in October.
The claims data have no bearing on December’s employment report, which is due to be released on Friday, as they fall outside the survey period. A Reuters survey of economists forecasts that nonfarm payrolls likely increased by 60,000 jobs last month after a gain of 64,000 in November. But financial markets’ focus is likely to be on the unemployment rate, which is estimated to have slipped to 4.5% after accelerating to more than a four-year high of 4.6% in November.
The November unemployment rate was partially distorted by the 43-day federal government shutdown, which also prevented the collection of household data for October. The unemployment rate for October was not published for the first time since the government started tracking the series in 1948.
Stocks on Wall Street were mixed. The dollar advanced versus a basket of currencies. U.S. Treasury yields rose.
Companies Doing More With Fewer Workers
In a separate report, the Labor Department’s Bureau of Labor Statistics said nonfarm productivity, which measures hourly output per worker, accelerated at a 4.9% annualized rate in the third quarter. That pace was the quickest since the third quarter of 2023 and followed an upwardly revised 4.1% growth rate in the second quarter.
Economists had forecast productivity would grow at a 3.0% rate after a previously reported 3.3% pace of expansion in the April-June period. Productivity grew at a 1.9% rate from a year ago. The jump in productivity explains the gap between strong gross domestic product growth and a lackluster labor market.Â
The economy grew at a robust 4.3% rate in the third quarter. In contrast, private job gains averaged 55,000 per month in the three months through October. Though the Federal Reserve was not expected to cut interest rates again this month, economists said strong productivity, which resulted in unit labor costs decreasing at a 1.9% rate in the third quarter, gave the U.S. central bank room for monetary policy easing this year.
Unit labor costs, the price of labor per single unit of output, declined at a 2.9% pace in the April-June quarter. Labor costs increased at a 1.2% rate from a year ago.
“Given that labor is the key input for super core services inflation, this is good news for the inflation outlook, even if some of the survey-based prices paid indicators remain a little elevated,” said Paul Ashworth, chief North America economist at Capital Economics.
A separate report from the Commerce Department’s Bureau of Economic Analysis and Census Bureau showed the trade deficit narrowed 39.0% to $29.4 billion in October, the lowest level since June 2009, as goods imports tumbled due to President Donald Trump’s sweeping tariff increases. Should that trend be sustained, trade could again add to gross domestic product in the fourth quarter.
The decline in goods imports also suggested softening domestic demand, with consumer goods imports at the lowest level since June 2020, though much of the drop was in pharmaceutical preparations.
While exports, including goods, were the highest on record, that jump mostly reflected exports of non-monetary gold and other precious metals. The goods trade deficit compressed 24.5% to $59.1 billion, the lowest level since March 2016. Trade contributed to GDP growth in the second and third quarters of 2025.
The Atlanta Fed boosted its fourth-quarter GDP growth estimate to a rate of 5.4% from 2.7%.
“The 2026 outlook for the economy is looking better than ever for now,” said Christopher Rupkey, chief economist at FWDBONDS. “The only thing missing is that American workers seem to be left by the wayside, with companies continuing to keep costs down by limiting the hiring of additional workers.”
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama, Andrea Ricci and Paul Simao)
