US jobless claims below 200,000 for 3rd week as layoffs fall: Will Fed raise rates?

New applications for US unemployment benefits fell last week, showing that layoffs remain low despite rising costs and economic uncertainty. The latest data suggest that the US labour market is still stable, even as companies remain careful about hiring new workers, according to a report from the US Labor Department.

US jobless claims stay below 200,000 for three weeks as markets assess the Fed's next rate move. (Pexel/Representative image) (Pexel)Initial claims for state unemployment benefits fell by 1,000 to a seasonally adjusted 197,000 in the week ended September 26. Economists polled by Reuters had expected the number to reach 200,000.

New jobless claims have remained below the 200,000 mark for three consecutive weeks. The figures are close to levels last seen in 1969, pointing to historically low layoffs in the US.

Economists said healthy corporate profits and steady demand from US consumers are helping companies avoid layoffs for now, despite rising costs.

The US-Israeli war with Iran has pushed diesel prices to record highs, adding pressure on businesses. Carl Weinberg, chief economist at High Frequency Economics, said companies might eventually be forced to lay off workers to protect their profits if energy and material costs remain high. However, he said there were no signs of this happening yet.

Layoffs announced by US-based employers fell 18% to 43,281 in September, according to a separate report from global outplacement firm Challenger, Gray & Christmas. The figure was also 20% lower than a year earlier. Announced layoffs fell 43% in the third quarter.

US employers announced plans to hire 90,787 workers in September, sharply higher than the 12,325 planned hires in August. However, hiring plans were still 23% lower than a year earlier and marked the lowest September total since 2011, Challenger, Gray & Christmas said.

Employers have not increased hiring plans as much as they typically do during the seasonal hiring period that begins in September. Challenger, Gray & Christmas said the usual increase in seasonal hiring was missing, adding that companies were in a “wait-and-see period.”

The Federal Reserve raised its benchmark overnight interest rate by 25 basis points to a range of 3.75%-4.00% last month. It was the first rate hike in three years. The Fed also indicated that borrowing costs could rise further in the coming months.

The chances of another Fed rate hike in October fell after inflation data for July and August came in lower than expected. These readings had eased concerns about rising prices, reducing expectations that the central bank would tighten monetary policy again immediately.

Financial markets were pricing in a 37.1% chance of another rate hike at the Fed's October 27-28 meeting, down from around 68.6% a week earlier, according to CME's FedWatch tool.

However, lower inflation readings from the summer may not continue. A survey from the Institute for Supply Management (ISM) showed that price pressures at US factories increased in September. The survey's measure of input prices rose to 77.9 from 71.1 in August. No commodities were reported to have recorded price declines.

Strong demand is running into supply constraints as the war and tariffs disrupt supply chains. Businesses are facing higher costs, changing prices and longer delivery times. Thomas Ryan, senior North America economist at Capital Economics, said the longer energy-driven price pressures continue, the greater the risk that they will push up prices across the wider economy.

The number of people continuing to receive unemployment benefits after their first week of aid fell by 11,000 to a seasonally adjusted 1.701 million in the week ended September 19. The latest figure was the lowest since April 2023.

Despite low initial jobless claims, some people who have lost their jobs are facing longer periods of unemployment. A Conference Board survey released on Tuesday showed that the share of consumers who said jobs were plentiful fell in September to its lowest level since February 2021. The share of consumers who said jobs were hard to get reached its highest level in more than five and a half years.

The latest jobless claims data do not directly affect the September employment report because the claims figures fall outside the survey period used for that report.

Economists polled by Reuters expected US nonfarm payrolls to increase by 90,000 in September, after rising by 162,000 in August. Economists expected the US unemployment rate to remain at 4.1% for the third consecutive month.

The latest jobless claims figures show that layoffs remain low, but hiring plans are weak and some workers are struggling to find new jobs.

Although markets have reduced their expectations of an October rate hike, the Fed's next move will depend on how inflation, employment and other economic data develop.

Durva More is a Senior Content Producer at Hindustan Times, where she covers finance, and global news. She brings experience across digital and television journalism, with a strong focus on breaking news, business reporting, and international affairs. Before joining Hindustan Times, Durva worked as an International News Writer at The Economic Times, covering a diverse range of subjects including global politics, business, sports, entertainment, and major world events. She also worked as a Business Reporter with NDTV Profit. A postgraduate diploma holder in Journalism from the Asian College of Journalism, Durva is passionate about field reporting and storytelling. She thrives on the adrenaline of chasing stories, speaking with people from different walks of life, and amplifying voices that deserve to be heard. Her reporting is driven by curiosity, accuracy, and a commitment to making complex subjects accessible to readers. When she is not chasing stories or covering breaking news, Durva enjoys reading books and painting. She loves exploring new ideas, meeting people, and learning about different perspectives. For her, both journalism and art are ways to understand the world and tell stories that matter.Read More