The number of Americans who filed new applications for unemployment benefits increased slightly last week, as the pace of layoffs continues to decline, which enhances the stability of the labor market.
The US Department of Labor said on Thursday that initial applications for government unemployment benefits increased by 1,000 applications, reaching 199,000 applications, after seasonal adjustment, during the week ending October 10. Economists polled by Reuters had expected 200,000 applications to be recorded during the same week.
This is the fifth week in a row in which claims remain below the 200,000 level, consistent with economists’ description of the labor market as witnessing “a decline in both employment and layoff rates.”
In its report issued on Wednesday, the Federal Reserve described labor market conditions as “little to no change” during the period from late August to early October, noting that labor supply was “generally sufficient to meet demand.”
But the report also pointed to the continued shortage of “skilled specialized, technical, and professional labor.” He added that five regions reported that some companies had reduced the number of their employees, either by refraining from compensating employees who leave, or by postponing recruitment, or by expecting to provide fewer jobs as a result of increased productivity thanks to investment in artificial intelligence.
The labor market derives its stability from low layoff rates, while hiring is still proceeding at a slow pace, amid what economists describe as “headwinds” facing employers, resulting from customs duties and high prices related to the American-Israeli conflict with Iran. On Wednesday, the government announced the acceleration of consumer inflation in September.
The claims report also showed that the number of people who continued to receive unemployment benefits after the first week of eligibility, an indicator used to estimate the pace of hiring, fell by four thousand people, to 1.710 million people, after seasonal adjustment, during the week ending October 3.
However, continuing aid applications do not include recent university graduates and others who do not meet the requirements for benefits, due to their short professional record or lack of previous work experience.
Also, some long-term unemployed people may have exhausted their eligibility for benefits, which in most states is limited to 26 weeks, contributing to the number of continuing claims remaining at low levels.
The average duration of unemployment reached 11.5 weeks in September, a level approaching its highest levels in four and a half years, while the unemployment rate recorded 4.2 percent during the same month.
Official data, issued on Thursday, showed that the British economy recorded a better-than-expected performance last August, driven by a new rise in computer programming activity. This provides additional evidence of the role of artificial intelligence in enhancing economic growth. These data give Finance Minister John Healey a positive boost ahead of his announcement of the budget.
The British National Statistics Office reported that the gross domestic product grew by 0.1 percent last August, exceeding economists’ expectations in a Reuters poll, which suggested a contraction of 0.1 percent.
The annual growth rate rose to 2.1 percent, the highest level since October 2022, when the economy was still recovering from the repercussions of the “Covid-19” pandemic. Excluding that period, this is the fastest growth rate since December 2019.
In an additional indication of the role of the artificial intelligence boom in supporting the British economy, the Office for National Statistics stated that the computer programming sector was the largest contributor to growth during the three months ending last August.
“Sector analysis indicates that artificial intelligence is behind a large part of this rise,” said Andrew Wishart, chief economist at Berenberg Bank, adding that consumer spending was also stronger than expected, despite the rise in inflation rates.
The British economy is showing widespread strength
The Office for National Statistics also indicated that growth over the past year included a wide range of the services sector, which constitutes the basic pillar of the British economy.
Thomas Bowe, chief economist at RSM UK, a tax and auditing firm, said: “We have to stop talking about mere ‘resilience’ and start talking about good and acceptable growth this year, even if economic activity stagnates in the fourth quarter.”
However, Haley faces a major challenge as long-term government borrowing costs recently reached their highest levels since the 1990s. It must adhere to its financial rules without worrying investors, despite the sharp decline in government bond yields on Thursday.
This data may also affect policymakers at the Bank of England, as they consider raising interest rates next month, especially since economic growth in the third quarter appears likely to exceed the Central Bank’s expectations of 0.4 percent.
Bowe said that these indicators suggest that interest rates at their current levels do not restrict economic activity to the extent that the Bank of England had assumed.
During the first half of 2026, Britain and the United States shared the top spot as the fastest growing economies within the “Group of Seven countries.”
Healey welcomed these data, saying in a statement: “Despite the conflicts in the Middle East and Europe affecting people around the world, today’s figures (Thursday) provide further evidence of Britain’s ability to withstand these global shocks.”
A strong boost from the manufacturing and programming sectors
Last August alone, growth was driven by the manufacturing sector, which recorded a monthly increase of 1.2 percent, contradicting expectations that indicated a slight decline in production.
As for the services sector, it remained stable during the month, exceeding expectations that it would decline by 0.1 percent. The computer programming sector emerged again, recording a growth of 1.1 percent, bringing its production output since the beginning of the year to a level of more than 13 percent.
Jake Finney, chief economist at PwC, said: “Business investments, especially in technology devices, have been an important driver of Britain’s strong and unexpected economic performance this year.”
He added: “The United Kingdom is still lagging behind the United States in terms of the size of these investments and the extent of their contribution to enhancing growth, but it is making progress and remains superior to many of its European counterparts.”
According to national accounts data, output in Britain's broader information and communications sector rose 12 percent this year, compared to growth of two and 0.2 in Germany and France, respectively.
The International Monetary Fund said earlier this week that rising energy prices and increasing long-term interest rates may put pressure on British economic growth next year, despite raising its growth forecast for the current year to 1.3 percent, compared to a previous estimate of 1.0 percent.
In the currency market, the pound sterling headed on Thursday towards achieving its largest daily gain against the dollar since mid-August, supported by the weakness of the US currency and unexpected growth data in the British economy.
The British pound rose 0.5 percent to $1.3253, benefiting from a 0.15 percent decline in the dollar. The US currency was under pressure due to the decline in US Treasury bond yields and the increase in anxiety in stock markets, in light of an atmosphere of “risk aversion,” while traders monitor macroeconomic developments and interest rate expectations.
The euro also benefited from the decline in the dollar, while the pound sterling stabilized against the single European currency at 84.60 pence per euro.
Indications are increasing that the Bank of Japan may continue to tighten its monetary policy in the coming months, after its board member, Junko Koeda, warned on Thursday against being overly cautious about raising interest rates, in light of the continued upside risks of inflation, a weak yen, and rising raw material costs.
Koeda's statements come ahead of the central bank's meeting scheduled for October 29-30, during which he will issue updated forecasts for growth and inflation, with investors awaiting signals about the timing of the next increase in interest rates, after they were raised last month to the highest level in 31 years.
Koeda stressed that the economic and financial conditions in Japan still allow for further monetary tightening, noting that the neutral interest rate, which does not stimulate or restrict economic activity, is in her estimation at a level well above 1 percent.
The Bank of Japan's key interest rate currently stands at 1.25 percent, indicating that there is room for additional increases if inflationary pressures persist and there are no clear signs of a decline in economic activity.
Koeda said, during a speech to business leaders in the southern Japanese city of Kumamoto, that the central bank should adjust interest rates at the appropriate time, taking into account developments in the economy, prices and estimates related to the neutral level of interest.
She added that the continuation of easy financial conditions, coupled with the high risks of rising prices, means that the bank should not hesitate excessively in making monetary tightening decisions.
These statements reflect a gradual shift in Japanese monetary policy priorities, after the central bank focused for many years on confronting weak inflation and stimulating economic activity through very low interest rates.
As for the current stage, it is characterized by increasing concern about the continued rise in prices above the target level, which prompts policy makers to search for a new balance between supporting growth and maintaining price stability.
Koeda pointed out that the strong global demand for artificial intelligence technologies, the escalation of tensions in the Middle East, and the weak yen are factors that contribute to increasing the costs of raw materials and imported goods, and then transferring pressures to local prices.
The decline of the Japanese currency leads to an increase in the cost of dollar-denominated imports, especially energy and raw materials, which is reflected in companies’ expenses and the prices of final products.
The continued turmoil in global energy markets may increase pressure on the Japanese economy, which relies heavily on importing fuel and natural resources.
Despite these challenges, Koeda stressed that the Japanese economy has shown the ability to withstand recent external shocks, including the rise in US tariffs and the repercussions of the war in the Middle East.
She said that the continued rise in prices of a wide range of consumer goods indicates that core inflation is gradually taking hold near the central bank’s target level of 2 percent.
This assessment is of particular importance, because it reflects the transition of inflation from a phenomenon associated with some imported goods to more widespread pressures in the local economy.
In such circumstances, delaying the rate hike may become a factor that makes it more difficult to control inflation later, if companies continue to pass on higher production costs to consumers.
Koeda stressed that financial conditions in Japan remain easy despite previous increases in interest rates, with no strong indications emerging that rising borrowing costs have significantly harmed household spending or corporate activities.
This assessment reinforces the view that monetary policy normalization should continue gradually, rather than maintaining low interest levels for an extended period.
The Bank of Japan raised the key interest rate in September to 1.25 percent, the highest level in 31 years, indicating a growing interest in preventing core inflation from exceeding the target level on a sustainable basis.
The decision strengthened market expectations that additional steps could be taken before the end of the year.
Reuters quoted sources that the bank may prefer to stabilize interest rates during the October meeting, while issuing signals tending to monetary tightening, which supports expectations of raising them in December.
But the final decision will depend on new economic data, especially the trend in inflation, wages and consumer spending, as well as the impact of external developments on economic activity.
Kuida's statements renewed interest in the concept of the neutral interest rate, which represents an important reference for determining the extent to which monetary policy approaches a level that does not stimulate or pressure the economy.
Estimates prepared by Bank of Japan staff indicate that the nominal neutral interest rate falls within a range of 1.1 to 2.5 percent.
However, the bank cautioned against treating these estimates as accurate or final levels, given that the neutral interest rate cannot be monitored directly, and is affected by the assumptions and data used in its calculation.
As for financial markets, continuing to raise interest rates may support the yen by reducing the yield gap between Japan and major economies, but in return, it may increase financing costs for companies and households.
Higher interest rates may also pressure existing government bond prices, while giving investors higher returns on new issues.
The importance of this shift is evident for Japanese insurance companies and financial institutions, which have begun to re-evaluate the attractiveness of local bonds after years of directing huge investments abroad in search of better returns.
At the same time, the government faces a financial challenge represented by the rising cost of servicing the public debt if revenues continue to rise, especially with the spending and tax reduction plans adopted by the government of Prime Minister Sanae Takaichi.
These developments reveal a complex equation facing the Bank of Japan. It must contain inflation and support currency stability, without causing excessive fiscal tightening that weakens consumption and investment.
In conclusion, Koeda's statements reinforce expectations that Japan's interest rate hike cycle has not reached its end, even if the central bank decides to wait at its next meeting.
The growth and inflation forecasts that the bank will issue at the end of October, along with the statements of its governor and members of its board of directors, will be decisive indicators to determine whether the next increase will come before the end of the year, and the extent of the Japanese economy’s readiness to bear further rising borrowing costs.
