America’s labour market may be slowing — but it is far from breaking

America’s labour market is showing signs of cooling, but not collapsing. Fresh economic data released on Thursday painted a picture of an economy that is hiring more slowly than before, yet remains resilient enough to keep the Federal Reserve firmly on hold on interest rates.

Weekly unemployment claims rose modestly, job growth is expected to slow in April, and layoffs in parts of the technology sector continue to make headlines. But beneath the surface, economists say the broader labour market still appears stable despite mounting geopolitical and economic pressures stemming from the ongoing US-Israel war with Iran and disruptions to global energy markets.

The latest data from the US Labor Department showed initial claims for state unemployment benefits rose by 10,000 to a seasonally adjusted 200,000 in the week ended May 2. While that marked an increase from the previous week’s unusually low level — the lowest since 1969 — the figure remained historically subdued and below economists’ expectations of 205,000 claims.

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The numbers reinforced the view that layoffs remain limited across much of the economy even as businesses grapple with higher fuel costs, supply disruptions through the Strait of Hormuz, and persistent uncertainty over global growth.

Slow hiring, slower firing

Economists increasingly describe the US labour market as being stuck in a “slow hire, slow fire” phase. Companies are hiring cautiously, but they are also reluctant to let workers go.

That pattern has helped keep unemployment relatively stable even as monthly payroll growth becomes more volatile. Reuters economists expect nonfarm payrolls to have increased by 62,000 jobs in April, down sharply from March’s 178,000 gain.

Even so, economists caution against interpreting slower payroll growth as a sign of deepening weakness.

Current estimates suggest the US economy now needs to add between zero and 50,000 jobs per month to keep pace with growth in the working-age population, largely because immigration flows have slowed significantly under tighter border policies.

Financial markets increasingly expect the US central bank to keep interest rates unchanged well into 2027 after the Fed last week maintained its benchmark interest rate in the 3.50 to 3.75 per cent range, citing concerns that inflation risks remain elevated.

War-driven inflation clouds outlook

The labour market’s resilience comes even as the broader economy faces mounting pressure from surging energy prices linked to the West Asia conflict.

Economists warn that disruptions to shipping routes through the Strait of Hormuz are pushing up the costs of fuel and imported goods, squeezing household budgets and raising the risk of slower consumer spending later this year.

Yet so far, the impact has not translated into a significant rise in layoffs.

Government data released earlier this week showed there were 0.95 job openings for every unemployed person in March, up from 0.91 in February, signalling that labour demand remains relatively healthy.

The number of Americans continuing to receive unemployment benefits after an initial week of aid fell by 10,000 to 1.766 million in late April, the lowest level since January 2024.

That decline could partly reflect workers exhausting eligibility for benefits, which typically last up to 26 weeks in most states, but it also points to continued difficulty for employers in finding and retaining workers.

AI layoffs dominate headlines

Technology firms continue to account for a disproportionate share of job cuts this year as companies accelerate the adoption of artificial intelligence across operations.

A report from Challenger, Gray and Christmas showed US employers announced 83,387 job cuts in April, up 38 per cent from March. However, layoffs were still down 21 per cent compared with the same month last year.

Overall, announced job cuts so far in 2026 are down 50 per cent from the same period in 2025.

Economists say the relatively muted impact of tech layoffs on unemployment claims may partly reflect generous severance packages offered to displaced workers.

At the same time, sectors tied to healthcare and social assistance are expected to remain major drivers of employment growth due to America’s ageing population.

However, rising visa costs for foreign medical professionals and cuts to healthcare subsidies are emerging as new risks.

Wage growth may keep Fed cautious

Economists also expect wage growth to have strengthened in April, further reducing the likelihood of Fed rate cuts.

Average hourly earnings are forecast to have risen 0.3 per cent month-on-month after a 0.2 per cent increase in March, pushing annual wage growth back up to 3.8 per cent.

But stronger wages are increasingly being offset by rising inflation, particularly at petrol pumps where gasoline prices have climbed above $4.50 a gallon in several parts of the country.

That divergence is deepening economic inequality, economists say.

Separate government data on Thursday also showed worker productivity rose at a 0.8 per cent annualised pace in the first quarter after growing 1.6 per cent in the previous quarter.

The figures have fuelled debate over whether artificial intelligence is genuinely boosting productivity or simply masking weaker hiring trends.

With inputs from agencies.