U.S. jobless claims edged up to 199,000 last week while planned layoffs fell to a two-year low in July, signs of a stable labor market even as an oil-price shock from the Middle East conflict lingers. Separately, worker productivity accelerated more than economists expected in the second quarter, cooling the wage pressures the Federal Reserve is watching ahead of Friday's jobs report.
Initial claims for state unemployment benefits rose by 1,000 to a seasonally adjusted 199,000 in the week ended August 1, the Labor Department said Thursday, below the 202,000 claims economists polled by Reuters had forecast. Claims have dropped considerably since surging in early June and now sit at the lower end of their 189,000-230,000 range for the year.
Layoffs stay near a two-year low
Layoffs have remained very low despite the oil price shock from the U.S.-Israeli war with Iran, now in its sixth month. Outplacement firm Challenger, Gray and Christmas said planned job cuts by U.S.-based employers dropped 27% to 33,429 in July, the lowest level since July 2024.
Announced layoffs fell 46% from a year ago and are down 41% this year compared with the same period in 2025. The number of people continuing to receive benefits after an initial week of aid — a proxy for hiring — rose 24,000 to a seasonally adjusted 1.801 million in the week ended July 25.
Productivity accelerates, cooling labor costs
Nonfarm productivity increased at a 1.4% annualized rate last quarter, beating the 0.6% rate economists had forecast, the Bureau of Labor Statistics said. Productivity has grown at a 2.2% rate from a year ago. The labor share of output — the portion accruing to workers as compensation — hit a record low of 52.9% last quarter.
Unit labor costs increased at a 1.3% rate, against the 2.1% rate economists had expected, while hourly compensation rose 2.7%. Unit nonlabor payments, by contrast, surged at a 14.0% pace, the fastest in four years.
According to Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets: "unit labor costs are not a sufficient condition for achieving 2% inflation." Economists said there were some signs that businesses adopting artificial intelligence was raising productivity, though layoffs tied to the AI buildout have stayed mostly confined to the technology industry.
Fed weighs its next move before Friday's payrolls report
The lack of labor market stress and contained wage pressures gave the Fed room to focus on the inflation fallout from the Middle East conflict, economists said, though the central bank could still raise rates next month unless inflation improves. The Fed left its benchmark rate in a 3.50%-3.75% range last week, with three policymakers dissenting in favor of a quarter-percentage-point hike.
Nonfarm payrolls likely rose by 80,000 jobs last month after climbing 57,000 in June, a Reuters survey showed, with the unemployment rate forecast to hold at 4.2%. The jobless rate could still edge higher after a Conference Board survey showed the share of consumers calling jobs "plentiful" fell in July to its lowest level since February 2021.
Stocks on Wall Street were mostly lower Thursday, the dollar gained against a basket of currencies, and Treasury yields rose.
Source: Investing.com
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