The US labour market showed signs of resilience in the latest government data, with weekly applications for unemployment benefits falling to a level last recorded in 1969. At the same time, worker productivity accelerated faster than economists expected in the third quarter of 2026, while labour costs declined for the first time in more than a year.
The figures present an unusual combination for the US economy: employers are holding on to existing workers even as permanent hiring remains cautious, while businesses are producing more output per hour worked. The developments could help ease concerns about wage-driven inflation and influence the Federal Reserve’s decisions on interest rates, although persistent price pressures and uncertainty surrounding the Middle East conflict remain important risks.
US Jobless Claims Fall to 189,000
Initial claims for state unemployment benefits fell by 6,000 to a seasonally adjusted 189,000 in the week ended October 31, according to the US Department of Labor. The figure matched the level recorded in mid-July, which was the lowest since 1969.
The latest reading also came in below the 196,000 claims expected by economists surveyed by Reuters. Applications have remained mostly below 200,000 since mid-September, suggesting that companies are not carrying out widespread layoffs despite economic uncertainty.
Jobless claims are an important indicator of the labour market because they provide an early estimate of how many workers are losing their jobs and seeking unemployment assistance. A sustained decline generally indicates that employers are retaining employees.
The latest figures suggest that many businesses continue to benefit from domestic demand and relatively solid profits. However, low layoffs do not necessarily mean that companies are hiring aggressively or that job opportunities are expanding across the economy.
Continuing Claims Rise, Highlighting Hiring Challenges
While new applications declined, the number of Americans continuing to receive unemployment benefits increased.
Continuing claims rose by 23,000 to a seasonally adjusted 1.718 million for the week ended October 24. This measure tracks people receiving unemployment benefits beyond their initial week and can provide insight into how quickly unemployed workers are finding new jobs.
The increase suggests that some job seekers may be taking longer to secure employment, even as companies avoid large-scale layoffs.
The distinction is important because the US labour market has increasingly displayed a low-hire, low-fire pattern. Employers are reluctant to dismiss existing workers but are also cautious about expanding permanent payrolls.
Some unemployed people may also be missing from continuing-claims figures. Recent graduates and individuals with limited work histories may not qualify for unemployment benefits, while others may have exhausted their eligibility. In most states, unemployment benefits are generally available for up to 26 weeks.
October Layoff Announcements Remain Historically Low
Separate data from global outplacement firm Challenger, Gray & Christmas showed that US-based employers announced 43,994 job cuts in October.
Although announced layoffs increased 2% from September, the total was the lowest recorded for any October since 2023. Planned job cuts were down 71% compared with October 2025.
The same report showed that employers announced plans to hire 444,692 workers in October, a 57% increase from the same month last year. Hiring plans reached their highest October level since 2009.
However, much of this hiring is expected to be seasonal rather than permanent. Retailers, logistics companies and other businesses typically increase staffing ahead of the holiday shopping period to manage higher demand.
Andy Challenger, chief revenue officer at Challenger, Gray & Christmas, said employers were retaining existing workers heading into the holiday season while using short-term seasonal recruitment to maintain flexibility.
This suggests that the increase in hiring announcements should not automatically be interpreted as evidence of a broad-based recovery in permanent employment.
Worker Productivity Grows 3.6% in Third Quarter
The second major development came from the Labor Department’s productivity report.
Nonfarm business productivity, which measures the amount of output produced per hour worked, increased at an annualised rate of 3.6% in the third quarter of 2026. The result exceeded the 2.8% growth forecast by economists surveyed by Reuters.
It also represented an acceleration from the upwardly revised 2.1% growth recorded in the second quarter. The previously reported second-quarter figure had been 1.4%.
On a year-over-year basis, productivity increased 2.1%.
Productivity growth matters because businesses can expand production without increasing their workforce or working hours at the same rate. Higher output per hour can support economic growth while limiting the pressure on companies to raise wages simply to produce more goods and services.
The latest figures therefore offer a potentially positive signal for businesses dealing with labour expenses, particularly in sectors where efficiency improvements can be translated into higher output.
| US labour market indicator | Latest reading | Previous or comparison |
|---|---|---|
| Initial jobless claims | 189,000 | Down 6,000 |
| Continuing claims | 1.718 million | Up 23,000 |
| Q3 productivity growth | 3.6% annualised | 2.1% in Q2 |
| Q3 unit labour costs | Down 0.7% | Up 1.9% in Q2 |
| October announced job cuts | 43,994 | Down 71% year over year |
| October hiring plans | 444,692 | Up 57% year over year |
Falling Labour Costs Could Help Ease Inflation
The productivity improvement was accompanied by a decline in unit labour costs, which measure the cost of labour required to produce one unit of output.
Unit labour costs fell at an annualised rate of 0.7% in the third quarter. It was the first quarterly decline since the second quarter of 2025 and a significant change from the upwardly revised 1.9% increase in the second quarter.
Economists had expected unit labour costs to increase by 0.6%, making the actual result substantially weaker than anticipated. On a year-over-year basis, labour costs were still up 2.4%.
The relationship between productivity and labour costs is important for inflation. When workers produce more output per hour, companies can potentially absorb wage increases without raising prices as much. Conversely, when labour costs rise faster than productivity, businesses may face pressure to increase prices or accept lower profit margins.
The latest figures suggest that labour costs are not currently generating the same inflationary pressure that policymakers might face in a less productive economy.
However, the decline in unit labour costs does not mean that inflation has been eliminated. Energy prices, supply disruptions, housing expenses and other business costs can continue to influence the broader price level.
Is Artificial Intelligence Driving Productivity Growth?
The acceleration in productivity has also renewed interest in whether increased investment in artificial intelligence is beginning to improve business efficiency.
Companies across the US have committed substantial resources to AI infrastructure, software and automation. Investors and policymakers are watching closely to determine whether these investments can translate into measurable improvements in output.
However, the latest productivity figures do not establish that AI is responsible for the increase.
Stephen Stanley, chief US economist at Santander US Capital Markets, said AI had not yet made a noticeable contribution to productivity. He pointed instead to operational changes businesses introduced during the pandemic, many of which continued to improve efficiency in subsequent years.
Businesses redesigned workflows, adopted digital tools and changed how employees collaborate and deliver services. Some of these adjustments may still be generating productivity benefits.
Productivity data can also fluctuate considerably between quarters. A single strong reading is therefore insufficient to establish a lasting trend or determine how much of the improvement comes from technology, investment, workforce changes or other factors.
What the Latest Data Means for the Federal Reserve
The combination of low layoffs, stronger productivity and falling unit labour costs could provide some reassurance to the Federal Reserve.
The US central bank left its benchmark overnight interest rate unchanged in a range of 3.75% to 4.00% at its previous meeting, while acknowledging that inflation remained elevated.
A labour market that is not generating strong wage-driven inflation gives policymakers more flexibility to assess other sources of price pressure. The ongoing US-Israeli conflict with Iran has added uncertainty to the inflation outlook, particularly through its potential effects on energy and other costs.
Nevertheless, the latest figures do not guarantee that the Federal Reserve will avoid another rate increase. Economists cited by Reuters expected borrowing costs to rise in December, and any evidence that the labour market is tightening could strengthen the case for further action.
The central bank must also balance inflation risks against the possibility that restrictive interest rates could weaken hiring, investment and economic growth.
The Bigger Picture
The latest US labour market data illustrates why employment conditions cannot be judged through a single indicator. Falling jobless claims suggest that employers are retaining workers, but rising continuing claims and cautious permanent recruitment indicate that finding a new job may remain difficult for some Americans.
At the same time, faster productivity growth offers a potential source of economic strength. If businesses can continue increasing output without proportionately expanding labour costs, the economy may be able to sustain growth with less pressure on prices. That would be a favourable development for both companies and policymakers.
However, the durability of these improvements remains uncertain. Productivity growth is volatile, seasonal hiring can distort employment trends, and low unemployment-benefit claims may partly reflect changes in the size and composition of the labour force.
Looking Ahead
Investors and policymakers will focus on the next US employment report for October, which was expected to show an increase of 65,000 nonfarm payroll jobs, following a gain of 29,000 in September. The unemployment rate was forecast to remain at 4.2%. The weekly claims report does not directly determine the monthly employment figures because its reference period falls outside the October payroll survey window.
The Federal Reserve will also assess whether productivity gains continue to restrain labour costs and whether inflation pressures from energy and geopolitical developments intensify. For now, the US economy is showing an encouraging combination of low layoffs and stronger worker efficiency, but the outlook for permanent hiring, wage growth and interest rates remains uncertain.
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