New filings for U.S. unemployment benefits fell to their lowest level in a month last week, capping a turbulent year for the labor market that showed few signs of renewed momentum despite the broader economy’s resilience.
Initial claims for state unemployment benefits dropped by 16,000 to a seasonally adjusted 199,000 for the week ending Dec. 27, according to data released Wednesday by the Labor Department. The reading came in well below economists’ expectations for a rise to 220,000 and marked the lowest level since late November. The report was issued a day earlier than usual due to the New Year’s Day holiday.
Recent claims figures have been choppy, reflecting ongoing challenges in adjusting for seasonal factors around the holidays. Economists say the broader picture remains unchanged, with the labor market stuck in what has been described as a “no hire, no fire” pattern that defined much of 2025.
While the U.S. economy has remained relatively strong, with gross domestic product expanding at its fastest pace in two years during the third quarter, hiring has slowed sharply. Analysts attribute the slowdown to uncertainty created by policy shifts during President Donald Trump’s first year back in office, including sweeping tariffs and a tougher immigration stance that has constrained labor supply.
The number of people continuing to receive unemployment benefits after their initial claim fell by 47,000 to 1.866 million in the week ending Dec. 20, a figure often viewed as a proxy for hiring activity.
“The drop in initial unemployment claims to 199,000 in the week of Christmas was likely another seasonal-adjustment distortion,” said John Ryding, chief economic adviser at Brean Capital. “Bigger picture, we have not seen a meaningful increase in layoffs in 2025, with the average level of claims little changed from last year.”
Continuing claims had approached the 2 million mark in late October before easing as the year drew to a close and a record-long federal government shutdown ended in mid-November. Even so, they remain higher than at the same point a year earlier, aligning with recent survey data showing growing consumer concern about job availability.
Hiring slowed dramatically in 2025, with employers adding an average of just 55,000 jobs per month through November, roughly one-third of the pace seen in 2024. Businesses have appeared hesitant to expand payrolls as they await clearer signals on trade policy, immigration rules, and how quickly artificial intelligence-driven productivity gains may reshape workforce needs.
The slowdown has pushed job growth close to what economists consider the break-even level needed to keep unemployment from rising. The jobless rate climbed to a four-year high of 4.6% in November, though part of that increase was linked to technical factors associated with the government shutdown. A tracker from the Federal Reserve Bank of Chicago suggests the rate held steady at 4.6% in December. Official employment data for the month are due on Jan. 9.
Despite the higher unemployment rate, the share of the labor force receiving jobless benefits has remained near 1.1% throughout the year, an unusual divergence that economists say reflects employers’ reluctance to lay off workers in a still-tight labor market.
These mixed signals are complicating the Federal Reserve’s policy outlook. The central bank cut interest rates by 25 basis points in December, bringing its benchmark rate to a range of 3.50% to 3.75%, but indicated it may pause further cuts as it weighs persistent inflation pressures against signs of labor market cooling.
Minutes from the Fed’s December meeting revealed a divided policymaking committee, with some officials acknowledging the decision to cut rates was finely balanced and others suggesting they could have supported holding rates steady.
For now, Fed officials appear focused on incoming economic data early in 2026, which they say will be critical in determining whether further rate reductions are warranted as the labor market continues to send mixed and often conflicting signals.
