US jobless claims fall to seven-week low despite slowing labour market

The number of Americans filing new claims for unemployment benefits unexpectedly fell last week, hitting a seven-week low and suggesting that employers are still reluctant to let go of workers even as broader signs point to a cooling labour market. Initial claims for state unemployment benefits dropped by 5,000 to a seasonally adjusted 227,000 for the week ending July 5, the Labor Department reported on July 10. The figure surprised economists, who had forecast 235,000 claims, and marked the fourth consecutive weekly decline. The data was impacted by the July 4th holiday, which tends to cause fluctuations in reporting.

Non-seasonally adjusted claims rose by over 10,000, largely due to expected auto industry retooling shutdowns in states like Michigan, Ohio, and Tennessee. However, the increase was smaller than anticipated, suggesting that temporary layoffs were less severe than usual for this time of year. Labor Department seasonal models had forecast a spike of nearly 15,000 claims. Although jobless claims remain one of the timeliest indicators of labour market health, economists warn that the broader picture reflects a fragile balance between low layoffs and weak hiring.

Hiring slows as tariff uncertainty looms

While layoffs remain low, the hiring trend continues to soften. June’s jobs report showed the unemployment rate edged down to 4.1 per cent, but primarily due to a shrinking labour force participation rate, which hit a 2.5-year low. Although 147,000 jobs were added, gains were concentrated in a few sectors, underscoring limited opportunities for job seekers.

The median duration of unemployment rose to 10.1 weeks in June from 9.5 weeks in May, reflecting growing difficulty for the unemployed to find new positions. Continuing claims, a proxy for hiring activity, rose by 10,000 to 1.965 million—the highest level since November 2021.

Economists also point to US President Donald Trump’s newly announced tariff increases as a growing source of business uncertainty, which could suppress hiring further. More than 20 trade partners have been notified of new duties, including a 50 per cent tariff on copper imports, and further levies on semiconductors and pharmaceuticals are expected.

While the Federal Reserve held rates steady last month, markets are pricing in potential rate cuts beginning in September, especially if the impact of tariffs weighs on inflation and economic growth.