Jobs Report — Biggest Job Loss in Years, Fed Forced to Cut Rates

The private sector lost 32,000 jobs in September, marking the most significant decline in two and a half years. This comes as the official government jobs report was delayed due to a federal shutdown. Meanwhile, year-to-date job cut announcements have surpassed 946,000, the highest since 2020, with projections indicating the total could exceed one million for the first time since that year. These levels of job cuts are historically seen during recessions or periods of significant technological transformation.

This weakening labor market is pushing the Federal Reserve to continue cutting interest rates. The odds of a rate cut at the upcoming October meeting are at 96.2%, with further cuts anticipated in December. These rate cuts signal an easier monetary policy, which is generally beneficial for asset prices in the stock market, precious metals, and cryptocurrency.

While artificial intelligence (AI) was directly cited for 17,375 job cuts, it's not currently the primary driver of the broader labor market weakening. The majority of job cuts are attributed to economic conditions, closings, restructuring, bankruptcies, and cost-cutting measures. However, the speaker believes AI's impact on job elimination is understated and will become more significant in the coming years, based on firsthand observations in business lending. The ratio of job openings to unemployed workers has fallen below one, indicating an employer's market and a potential recessionary environment, prompting the Federal Reserve's accommodative monetary policy.

• The private sector lost 32,000 jobs in September, the largest decline in 2.5 years.
• Year-to-date job cut announcements have reached 946,426, the highest since 2020.
• The Federal Reserve is expected to cut interest rates, with a 96.2% chance for the October meeting.
• Economic conditions, closings, restructuring, and cost-cutting are the main reasons for job cuts, not AI, currently.
• The ratio of job openings to unemployed workers is now below one, signaling a weakening labor market and potential recessionary environment.

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Job Losses and Government Shutdown [00:00]

• The biggest job loss in years is occurring, forcing the Federal Reserve to continue cutting interest rates.
• The official government jobs report was delayed due to a federal shutdown.
• The ADP jobs report for September shows the private sector lost 32,000 jobs.
• This 32,000 job loss is the biggest decline in 2 and a half years.

This indicates a significant weakening in the labor market, directly influencing the Federal Reserve's monetary policy decisions.

We are witnessing the biggest job loss in years, which is going to force the Federal Reserve to continue cutting interest rates.

Job Cut Announcements [00:49]

• The Challenger report indicates that so far this year, companies have announced 946,426 job cuts.
• This is the highest year-to-date total since 2020.
• Job cut announcements are 55% higher compared to the same period in 2024.
• It is very likely that job cut plans will surpass one million for the first time since 2020.
• Periods with this many job cuts have historically occurred during recessions or periods of transformative technology.

The high volume of job cuts points to significant economic challenges and shifts within industries.

So far this year, companies have announced 946,426 job cuts, the highest year to date since 2020.

Federal Reserve and Interest Rate Cuts [01:49]

• The weakening labor market means the Federal Reserve will be obligated to continue cutting interest rates.
• Interest rates were cut in September and are likely to be cut again in October.
• The CM Fed watch tool shows a 96.2% chance of an interest rate cut at the October 29th meeting.
• The current Federal Funds interest rate is 4.25%.
• An expected cut of 0.25% would bring the Fed funds rate down to 4.0%.
• Odds of a rate cut increased from 90% to 96.2% after the ADP jobs report showed job losses.
• There is an 86.3% chance of an interest rate cut at the December 10th meeting.
• If cuts occur in October and December, the Fed funds rate could fall to 3.75%.
• It is widely expected that the Federal Reserve will continue to cut interest rates in 2026.

The Federal Reserve is actively using interest rate cuts to stimulate the economy in response to labor market weakness.

Now, if you're if you're an investor in the stock markets or precious metals or crypto, then you're going to like these odds because rate cuts means that an easier monetary policy is coming and that's going to boost asset prices.

Reasons for Job Cuts [03:53]

• The biggest reason cited for job cuts is "Doge" directly responsible for 293,000 job cuts, with a downstream impact of 20,000 more.
• Other significant reasons include economic conditions, closings, restructuring, bankruptcy, and cost cutting, totaling over 300,000 job cuts.
• Artificial intelligence (AI) was directly cited as the cause for 17,375 job cuts.
• Tariffs have been cited as the reason for 5,847 job cuts.

While AI is a talked-about factor, it currently accounts for a smaller portion of job cuts compared to broader economic and operational reasons.

So honestly I if you compare the numbers AI has not been responsible for that many job cuts relatively speaking.

AI's Future Impact and Speaker's Opinion [05:12]

• The speaker believes that while AI's current impact on job cuts is relatively low, it is likely to eliminate a large quantity of jobs in the years ahead.
• This opinion is based on firsthand experience witnessing AI's ability to eliminate back office and administrative employee roles in a lending business.
• The concern about AI eliminating many jobs in the future is not overblown; rather, it is understated.

The speaker foresees a substantial future impact of AI on employment, despite its current limited direct contribution to announced job cuts.

So my opinion is that this whole concern of AI eliminating many jobs in the future is not overblown in my opinion. Rather, it's understated.

Job Openings and Labor Market Balance [06:25]

• The most recent Jolts report shows that job openings continue to decline.
• In 2022, there were two job openings for every unemployed worker, indicating a job seekers' market.
• Employers were competing for workers with larger pay raises and hiring bonuses.
• Currently, there are less than one job opening for every unemployed worker.
• This indicates a clear employer's market, and the situation is worse than before the pandemic.
• A ratio of 1 to 1.5 job openings per unemployed worker is considered a normal and balanced labor market.
• Ratios above 1.5 are considered a tight labor market.
• Ratios below one are considered to have a lot of slack and a recessionary environment.

The labor market has shifted dramatically from a job seeker's market to an employer's market, signaling significant economic slack.

As you can see, we are now below one. And take a look at the chart. We are trending downward.

Labor Market Trends and Federal Reserve's Role [08:08]

• The downward trend in the labor market is why the Federal Reserve is cutting interest rates.
• The Fed is trying to revive the economy and the labor market with easier monetary policy.
• Fewer people are quitting their jobs, with many staying put due to less job security and fewer opportunities.
• The speaker notes that none of this information should be a shocker, but the data provides a clearer understanding of the situation's severity.
• The speaker plans to cover the official government jobs report once it is released.

The current labor market conditions, characterized by declining job openings and fewer quits, are prompting aggressive monetary policy intervention by the Federal Reserve.

Because we have a slowing labor markets, fewer people are quitting. You know, many people are staying put because there's less job security and there's fewer opportunities.