US Jobless Claims Dip Again, but Continued Claims Signal Softening Labor Market

Initial jobless claims in the United States fell to 217,000 in the week ending July 19, 2025, marking a decline of 4,000 from the previous week and defying market expectations, which had forecast a rise to 227,000. This was the sixth consecutive week of declines, bringing new filings to their lowest level since April. The data, released by the U.S. Department of Labor, point to continued resilience in the American labor market, at least in terms of layoffs, following some volatility earlier in the year. This string of declines underscores employer hesitancy to reduce headcounts, despite growing concerns about economic deceleration, high borrowing costs, and ongoing fiscal uncertainty.

At the same time, however, the data on continued claims (also known as insured unemployment) paint a more complex picture. Continuing claims, which are reported with a one-week lag and reflect the number of people who remain on unemployment benefits after their initial claim, inched higher to 1.955 million in the week ending July 12. While this figure came in marginally below consensus expectations, it still represents the second highest reading since November 2021. The divergence between falling initial claims and rising continued claims suggests a slowdown in re-hiring or job transitions, potentially indicating that laid-off workers are finding it harder to secure new employment. This dynamic may reflect broader shifts in hiring behaviour as companies become more cautious, particularly in interest-sensitive sectors such as real estate, finance, and technology.

One notable data point came from within the federal government workforce. Initial jobless claims filed by federal employees rose sharply by 193 to 789, reaching their highest level in four months. This uptick follows a wave of layoffs linked to restructuring and departmental cuts led by the Department of Government Efficiency (DOGE), which has been aggressively pursuing cost-containment measures across multiple agencies. While federal jobless claims represent a small fraction of the national total, they are closely watched as a proxy for public sector employment trends and policy-driven employment shocks. The recent rise could point to further bureaucratic streamlining ahead of the 2025 fiscal year-end, particularly as Congress debates agency budgets and administrative overhead.

From a historical perspective, the current levels of initial jobless claims remain well below long-term averages. For instance, pre-pandemic weekly claims averaged around 240,000, suggesting that layoffs remain relatively subdued. Moreover, the July 2025 print aligns with broader indicators such as the unemployment rate, which has hovered at or below 4% in recent months, and robust labor force participation figures. That said, the rising continued claims trend warrants caution. It typically signals weakening absorption capacity within the labor market—when displaced workers struggle to find new jobs, duration of unemployment rises, and consumer spending may eventually weaken as household income buffers erode.

Regionally, the jobless claims picture is mixed. According to supplementary data from the Labor Department, decreases in claims were led by states such as California (-3,100), Ohio (-1,200), and Georgia (-800), which saw declines due to fewer layoffs in services and manufacturing. In contrast, increases were observed in New York (+2,500), Texas (+1,700), and Illinois (+1,100), where education, construction, and public administration contributed to the rise. This regional heterogeneity supports the hypothesis that the U.S. labor market is entering a more fragmented phase, shaped by sectoral rotation and local economic policies.

Looking ahead, analysts anticipate that initial jobless claims could remain below 230,000 through early Q3, barring a sudden macroeconomic shock. However, the stickiness in continuing claims may foreshadow rising unemployment by the end of 2025 if re-employment cycles do not accelerate. Forecasts from the Congressional Budget Office (CBO) suggest a mild uptick in the unemployment rate to 4.4% by December, consistent with slower hiring and tighter financial conditions. Labor force productivity and wage growth data from Q2 will be pivotal in shaping policy responses, particularly with the Federal Reserve facing pressure to balance inflation control with full employment mandates.

In conclusion, while the decline in initial jobless claims reinforces the narrative of a still-strong labor market, the rise in continuing claims reveals that re-employment dynamics may be losing steam. This dual trend highlights an emerging asymmetry in the labor market: employers are reluctant to lay off workers, but are also cautious about new hiring. For policymakers and investors, this bifurcation signals stability on the surface but softening fundamentals underneath. Attention should now shift to hiring surveys, quit rates, and long-term unemployment figures to assess whether the labor market’s strength is sustainable or merely plateauing.

Sources

U.S. Department of Labor. (2025). Unemployment Insurance Weekly Claims Report – July 25, 2025. [https://www.dol.gov/ui/data.pdf]

Congressional Budget Office. (2025). Economic Outlook: Projections for 2025–2027. [https://www.cbo.gov/publication/59514]

Federal Reserve Bank of Atlanta. (2025). Wage Growth Tracker – June 2025. [https://www.atlantafed.org/chcs/wage-growth-tracker]

Bureau of Labor Statistics. (2025). Regional Employment and Unemployment, June 2025. [https://www.bls.gov/news.release/laus.nr0.htm]