US jobless claims fall, but labour market shows signs of strain

The number of Americans filing for unemployment benefits fell last week, but signs of a weaker labour market continue to emerge as both hiring and worker supply ease.

Initial claims for state unemployment benefits dropped by 33,000 to a seasonally adjusted 231,000 for the week ending September 13, the Labor Department reported on Thursday.

The decline partly reversed a surge in claims the previous week, when applications rose to levels not seen since October 2021.

That earlier increase was largely concentrated in Texas, where the state’s Workforce Commission said it had detected a spike in fraudulent claims following the September 1 Labor Day holiday.

Economists polled by Reuters had forecast 240,000 new claims for last week.

Demand for workers slows while supply tightens

Although layoffs remain relatively modest, hiring has slowed sharply.

Economists point to uncertainty stemming from tariffs on imports and tighter immigration rules that have constrained the labor supply.

Federal Reserve Chair Jerome Powell described the labor market as facing a “curious balance” during a press conference on Wednesday.

“Typically when we say things are in balance, that sounds good. But in this case, the balance is because both supply and demand have come down quite sharply,” Powell said.

“We now see the unemployment rate edging up.”

The unemployment rate currently stands at 4.3%, close to a four-year high.

The government also revised down employment growth estimates, suggesting payrolls could have been overstated by as many as 911,000 jobs in the 12 months through March.

Fed cuts rates to support economy

On Wednesday, the Federal Reserve cut its benchmark overnight interest rate by 25 basis points, lowering it to a 4.00%–4.25% range.

The move marked a return to monetary easing after the central bank paused earlier this year over concerns that President Donald Trump’s tariffs could push inflation higher.

Policymakers projected a steady pace of rate reductions through 2025 to help the labor market and broader economy.

However, Powell stressed that the latest cut was about “risk management,” cautioning investors against expecting a sharp pivot toward looser policy.

“The Fed’s 25 basis point cut is a clear signal: the softening labor market and stubborn inflation have pushed policymakers to act — but gradually,” said Gina Bolvin, president of Bolvin Wealth Management Group.

“For investors, this means modest rate relief, not fireworks.”

Hiring slowdown leads to longer jobless spells

Despite the decline in jobless claims, those who lose their jobs are struggling to re-enter the workforce.

The number of people receiving benefits after an initial week of aid slipped by 7,000 to 1.92 million in the week ending September 6.

But the average duration of unemployment is lengthening. In August, jobless spells averaged 24.5 weeks, the longest since April 2022, compared with 24.1 weeks in July.

Economists say this reflects the stall-speed pace of hiring.

Nonfarm payrolls increased by just 22,000 in August, while job gains have averaged only 29,000 per month over the past three months.

The slowdown has reinforced concerns that the economy may struggle to regain momentum without stronger policy support.

Markets look ahead

While Powell tempered expectations for aggressive easing, the central bank still anticipates two more cuts this year.

Investors, however, remain cautious, with many pricing in a slower pace of reductions.

Equity markets reacted nervously to the Fed’s stance, but the broader outlook remains positive.

The S&P 500 and Nasdaq are still on track for weekly gains of 0.2% and 0.5% respectively, while the Dow is poised for a second consecutive week of advances.

With inflation, tariffs, and labor market weakness all clouding the outlook, markets are bracing for more data to guide expectations on the Fed’s next steps.