America’s Job Market Looks Healthy. Hiring Tells Another Story

Americans filed near-historically low numbers of new unemployment claims Thursday, even as slowing hiring and weak job creation exposed a widening divide between workers holding existing positions and those struggling to find employment.

Initial unemployment claims fell to 194,000 for the week ending Saturday, approaching their lowest levels in nearly six decades, according to Labor Department (DOL) data. However, employers added just 29,000 jobs in September, presenting conflicting signals about labor market strength days before Federal Reserve officials meet to consider another interest rate decision.

New applications for unemployment benefits declined by 6,000 from the previous week’s revised total of 200,000, according to the DOL report. The four-week moving average fell to 197,750, suggesting businesses are largely retaining existing employees rather than conducting widespread layoffs.

Yet the latest employment figures reveal a different picture for Americans seeking work.

Nonfarm payrolls increased by just 29,000 in September, while the unemployment rate stood at 4.2%, according to the Bureau of Labor Statistics’ October report. Employers added an average of 45,000 jobs monthly over the preceding 12 months, underscoring a prolonged slowdown in employment growth.

The divergence arrives ahead of the Federal Reserve’s Tuesday and Wednesday monetary policy meeting, where officials must balance persistent inflation against signs of weakening demand for workers.

The central bank raised its benchmark interest rate by 25 basis points in September, bringing the target range to 3.75%–4.00%, its first increase since July 2023.

In its September statement, the Federal Open Market Committee said economic activity was expanding at a solid pace and that job gains had kept pace with the workforce, despite elevated inflation and geopolitical uncertainty.

However, the subsequent slowdown in payroll growth presents policymakers with a potential dilemma: higher borrowing costs could further discourage businesses from expanding their workforces, even as the Fed attempts to contain price increases.

Economists commonly describe the current environment as a “low-hire, low-fire” labor market, in which employers retain existing workers but hesitate to create new positions.

DOL’s latest survey of job openings and labor turnover reinforces the distinction. Employers reported approximately 7.1 million job openings in August, but the hiring rate stood at just 3.3%, with approximately 5.2 million hires recorded during the month.

The number of workers voluntarily leaving their jobs also remained subdued, with the quits rate holding at 1.9%, suggesting limited movement between employers.

Cory Stahle, an economist at Indeed Hiring Lab, wrote in September that employers continued signaling demand for workers through job postings without following through with increased hiring.

Stahle warned that higher borrowing costs could weigh on businesses’ decisions to fill existing vacancies or create additional positions, particularly as employers evaluate the cost of expanding their payrolls.

The slowdown can have particularly significant consequences for recent college graduates, first-time job seekers and workers attempting to reenter the labor market. Employees who already hold positions may benefit from relatively low layoffs, while those without jobs face a market in which opportunities remain limited.

The distinction exposes a limitation of weekly unemployment claims as a measure of labor market health.

Initial claims primarily track workers newly applying for unemployment benefits rather than the availability of jobs or the difficulty unemployed Americans face securing employment. Recent graduates and other first-time job seekers generally do not qualify for benefits without sufficient prior work history.

Another indicator, continuing unemployment claims, offers additional insight into how many Americans remain dependent on benefits after their initial applications.

Continuing claims increased by 25,000 to approximately 1.73 million for the week ending Oct. 10, according to the DOL report. Although the figure remains relatively low, its increase contrasts with the decline in new applications.

The conflicting employment signals come as the Federal Reserve confronts inflationary pressures associated with the war with Iran and elevated energy prices.

Minutes from the central bank’s September meeting, released Oct. 7, showed policymakers emphasizing resilient domestic spending and continued economic growth while acknowledging inflation remained above the central bank’s target.

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