UBS has issued a striking warning about the U.S. economy, particularly the labor market. In their latest report, led by economist Jonathan Pingle, they described a bleak situation where job growth is stalling, putting pressure on households and the overall recovery. The message comes at a critical time as economists have been without crucial federal data for over 40 days due to a government shutdown, which left them feeling like they were “flying blind,” as former Bureau of Labor Statistics head Erica Groshen put it.
The expected jobs data for September, once the government reopens, will be crucial. This year has seen a consensus among economists, including Fed Chair Jerome Powell, that the employment landscape has favored stability with fewer hires and firings. However, that narrative is changing quickly. Veronica Clark, an economist from Citigroup, noted that businesses might now be less inclined to hold onto workers due to an oversupply of available labor, raising the risk of increased layoffs.
Indeed, investigations show that layoffs are occurring at a pace not seen since before the pandemic. UBS pointed out that layoffs, unemployment claims, and various other indicators are all above pre-pandemic levels. For instance, October alone saw 157,000 layoffs announced, the highest since July 2020. Amazon, UPS, and Target are among the big names cutting thousands of jobs, showing a clear trend across industries.
This year, a staggering 760,000 layoffs have already been reported. This number is significantly higher than any year since the Great Recession in 2009. Major firms are making considerable cuts, which indicates a troubling shift in the job market. Many are attributing job losses to automation and technological advancements like AI.
UBS likened the job market to a bathtub, with layoffs (outflows) steady and hiring (inflows) slowing. Current hiring rates are at levels reminiscent of past recessions. The monthly job loss rate is concerning, particularly for private-sector payrolls, which are decreasing by an average of 36,000 jobs, excluding healthcare. Meanwhile, U-6, a broader measure of unemployment, has risen, indicating increasing underemployment, as more people are being forced into part-time work.
As of October, job openings have plummeted to their lowest levels since 2021. Even the openings that do exist may not reflect genuine hiring intentions, leading to an atmosphere of uncertainty. Despite the number of people looking for jobs or collecting unemployment benefits, many employers seem hesitant to fill their vacant positions.
During this time, holiday hiring plans are significantly lagging. Seasonal roles are down over 40% compared to a year ago, indicating a sharply declining demand for labor. Consumer sentiment is similarly gloomy, with a recent dip in consumer confidence levels alarming analysts. This decline puts additional stress on small businesses already worried about inflation and the weakening job market.
With the Federal Reserve caught in a dilemma, policymakers face a tough choice. Some are advocating for interest rate cuts to support the labor market, while others remain wary of ongoing inflation. As one Fed governor stated, the labor market’s deterioration can happen rapidly, prompting a need for careful analysis as fresh data emerges.
In summary, if layoffs continue to rise and hiring remains sluggish, the labor market could face serious contractions ahead. This may spiral into reduced consumer confidence and spending, which threatens to undermine the broader economic recovery. It’s a scenario that warrants close attention, especially as we navigate a potentially precarious economic landscape.
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