Labor Market Holds Firm as Productivity Surges, Factory Backlogs Build — Evening Brief – 01.29.26
A fresh batch of labor-market and manufacturing data suggests the U.S. economy is entering 2026 on relatively steady footing, even as growth cools and policymakers remain alert to signs of stress.
Initial jobless claims for the week ended January 24 declined by 1,000 to 209,000, slightly above consensus expectations, according to the U.S. Department of Labor. While the prior week’s reading was revised higher, the four-week moving average edged up modestly to 206,250—levels that remain consistent with historically low layoff activity. Continuing claims also moved lower, falling to 1.83 million and undershooting expectations, while the insured unemployment rate held steady at 1.2%.
Beneath the surface, productivity continues to do much of the heavy lifting. Data from the Bureau of Labor Statistics showed nonfarm labor productivity rose 4.9% quarter over quarter in the third quarter, unchanged from the preliminary estimate and accelerating from Q2. Output increased 5.4% while hours worked rose just 0.5%, helping push unit labor costs down 1.9% on the quarter.
On a year-over-year basis, productivity advanced 1.9%. Since the fourth quarter of 2019, productivity has grown at a 2.0% annualized rate—surpassing the prior business cycle and only slightly trailing the long-term average dating back to 1947. Manufacturing productivity also improved, rising 3.7% in Q3 as output increased and hours worked declined.
Factory data reinforced the picture of underlying demand strength. November factory orders jumped 2.7% month over month to $621.6 billion, handily beating expectations, according to the U.S. Census Bureau. Transportation equipment led the advance, with orders surging 14.7%. While shipments dipped modestly, unfilled orders rose 1.4% to $1.51 trillion—marking the 16th increase in the past 17 months and pushing the unfilled orders-to-shipments ratio higher.
Wholesale data echoed the theme of stabilization rather than retrenchment. Inventories rose modestly, sales rebounded sharply, and inventory-to-sales ratios continued to trend lower compared with last year.