Initial claims for U.S. unemployment benefits dropped to 198,000 in the week ended January 10, marking the first time the figure has fallen below the 200,000 threshold since November. The decline of 9,000 filings caught economists off guard, as a Reuters poll had forecast 215,000 claims. The four-week moving average, which smooths out short-term volatility, also fell to 205,000—its lowest level in two years.
The data suggests employers remain reluctant to lay off workers despite a cooling broader labor market. Supporting this view, continuing claims, which track people already receiving benefits, declined to 1.88 million in the prior week, indicating that those who lose jobs may be finding new work relatively quickly.
However, economists caution that seasonal adjustments around the year-end holidays may have amplified the drop, noting that underlying labor market dynamics have shown little recent change. "While layoffs remain limited, hiring has slowed considerably," the report notes, with companies reassessing staffing needs amid economic uncertainty and rapid investment in artificial intelligence.
The Federal Reserve's latest Beige Book described employment as "mostly unchanged" in early January, with several districts reporting increased use of temporary workers for flexibility. Recent government data showed the economy added only 584,000 jobs in all of 2025, the fewest in five years.
This strong jobs data arrives as the Fed weighs its next policy move. Officials cut interest rates at their final three meetings of 2025 to prevent a sharp labor slowdown and are now expected to hold rates steady later this month while reviewing fresh inflation data. Consumer inflation expectations remain sticky, with respondents to the University of Michigan survey expecting prices to rise 4.2% over the next year, unchanged from the prior month.
