The Quantum Insightsnumber of Americans filing new applications for unemployment benefits fell more than expected last week, suggesting fears the labor market is unraveling were overblown and the gradual softening in the labor market remains intact.

Initial claims for state unemployment benefits fell 17,000 to a seasonally adjusted 233,000 for the week ended Aug. 3, the Labor Department said Thursday, the largest drop in about 11 months. Economists polled by Reuters had forecast 240,000 claims for the latest week.

Claims have been on a roughly upward trend since June, with part of the rise blamed on volatility related to temporary motor vehicle plant shutdowns for retooling and disruptions caused by Hurricane Beryl in Texas.

Claims over the past few weeks have been hovering near the high end of the range this year, but layoffs remain generally low. Government data last week showed the layoffs rate in June was the lowest in more than two years. The slowdown in the labor market is being driven by less aggressive hiring as the Federal Reserve's interest rate hikes in 2022 and 2023 dampen demand.

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The U.S. central bank last week kept its benchmark overnight interest rate in the 5.25%-5.50% range, where it has been since last July, but policymakers signaled their intent to reduce borrowing costs at their next policy meeting in September.

However, the government's monthly nonfarm payrolls report last Friday showed job gains slowed markedly in July and the unemployment rate rose to 4.3%, raising fears in markets that the labor market may be deteriorating at a pace that would call for strong action from the Fed.

Interest rate futures contracts currently reflect a roughly 70% probability the Fed will start cutting borrowing costs next month with a bigger-than-usual 50-basis-point reduction.

The number of people receiving benefits after an initial week of aid, a proxy for hiring, increased 6,000 to a seasonally adjusted 1.875 million during the week ending July 27, the claims report showed.