America's Labor Market is Crashing — Fed Can't Ignore This

Official Jobs Report Unavailable Due to Government Shutdown [00:00]

• The official US jobs report, typically released on the first Friday of each month, is not being issued due to the US government shutdown.
• The Bureau of Labor Statistics (BLS) is unable to perform its duties, including releasing this critical data.
• Private sector reports and data points are being used as substitutes to assess the health of the US labor markets.
• The speaker warns that the available data indicates a negative economic picture, which will influence the Federal Reserve's December interest rate decisions.

"So essentially, they're not doing their job."

October Job Cuts Spike Dramatically [00:40]

• According to the Challenger reports, October experienced a massive spike in job cuts, with US-based employers announcing 153,074 layoffs.
• This figure represents a staggering 175% increase compared to October of the previous year.
• The preceding month, September, saw 54,640 job cuts, highlighting the significant escalation in October.
• These numbers are particularly concerning as companies often try to minimize layoffs in the fourth quarter due to holidays.

"This is up by 175%. Compared to October of last year, the previous month had 54,64 job cuts. And again, this month, it's a whopping 153,000."

Reasons for Increased Layoffs [01:23]

• The primary reasons cited for the surge in layoffs include AI adoption, a weakening consumer, softer corporate spending, and rising costs, which contribute to inflation.
• For the first 10 months of the year, employers announced 1,99,500 job cuts, a 65% increase compared to the same period last year.
• More companies announced plans for further layoffs in October compared to the previous year (450 vs. 400).
• The significant spike in job cuts in October, particularly in Q4, signals a severely challenging economic environment.

"The report cites AI adoption, a weakening consumer, softer corporate spending, and rising costs."

Industries Most Affected by Job Cuts [02:27]

• The technology sector saw a dramatic increase in job cuts, jumping from 5,639 in September to 33,281 in October.
• Retail, while having fewer cuts in October (2,431), has experienced 88,664 job cuts for the year, a 145% increase year-over-year.
• Services reported 63,580 job cuts year-to-date, a 62% increase.
• Warehousing saw a substantial 378% year-over-year increase in job cuts, with 90,418 cuts this year.
• Consumer product companies experienced a 21% year-over-year increase in job cuts, with 41,330 this year.

"And then warehousing, 90,418 job cuts this year. a 378% year-over-year increase."

Driving Forces Behind Company Layoffs [03:29]

• While cost-cutting was the primary reason for job cuts in October, artificial intelligence was the second-highest reason.
• Market and economic conditions, which can be interpreted as a weakening consumer, also play a significant role.
• For the year 2025, "other" was cited as the number one reason for layoffs, although this is not further elaborated upon.
• The current situation is described as terrible, with October marking the worst month for job cuts in 22 years.

"However, if you're just going to look at October, the number one reason was cost cutting and the number two reason was artificial intelligence."

Mixed Signals from ADP Report [04:04]

• The ADP report for October indicated that private payrolls rose by 42,000, which was a surprise as analysts expected net job losses.
• This contrasts with the ADP report for September, which showed job losses of 29,000.
• The ADP report suggests that job gains in transportation, utilities, and trade helped offset losses in other sectors.
• This creates a mixed picture, with the Challenger report showing record job cuts and the ADP report indicating hiring that may offset them, though the ADP data is subject to revision.

"Okay, so now we have a mixed bag here because the challenger report shows that we have record job cuts and ADP is saying that there was enough hiring to offset the record job cuts."

Federal Reserve Interest Rate Expectations [05:15]

• According to the CME Fed Watch tool, the Fed funds interest rate is currently at 4.0%.
• There is a 68.7% chance that the Federal Reserve will cut interest rates by 0.25% at their December 10th meeting.
• A week prior, the chance of a rate cut was 72%, indicating that the recent private sector labor market data has not significantly altered expectations.
• The Federal Reserve's September projections included a rate cut for December, which was consistent with their October meeting action.

"Right now, there's a 68.7% chance that the Federal Reserve will cut interest rates by a quarter point, so 0.25% 25% at the December meeting."

Federal Reserve's Dual Mandate and Challenges [06:53]

• The Federal Reserve operates with a dual mandate: price stability (controlling inflation) and maximum employment (ensuring a strong labor market).
• Currently, inflation is at 3%, significantly above the Fed's 2% target, and the rate of inflation has been accelerating.
• Simultaneously, the labor market is weakening, with job gains slowing down and job cuts increasing.
• This presents a dilemma for the Fed, as actions to combat inflation might harm employment, and vice versa.

"So they have to make sure that inflation doesn't get out of control. And number two is maximum employment."

Divergent Views Among Fed Members [08:12]

• Fed Governor Cook advocates for prioritizing the labor market and cutting interest rates to boost it, even if it risks being inflationary.
• Fed President Goulsby suggests prioritizing the fight against inflation by not cutting interest rates, which would likely lead to further labor market deterioration.
• This divergence highlights the difficult trade-offs the Federal Reserve faces.
• Fed Chair Jay Powell stated at the October meeting that there was significant disagreement among voting members regarding interest rate policy for December, offering a neutral stance that emphasized data dependency.

"So Cook is making the argument that the Federal Reserve should cut interest rates to boost the labor markets. However, if they're going to cut interest rates to boost the labor markets, then well, cutting interest rates is going to be inflationary."

Impact of Government Shutdown on Fed's Approach [09:36]

• Jay Powell acknowledged the government shutdown and the lack of official labor market data, suggesting it might lead the Federal Reserve to adopt a more cautionary approach, akin to slowing down in foggy conditions.
• Despite the shutdown, the SCP projections still pencil in a rate cut for December.
• The speaker believes, based on the private sector data, that the shutdown has not significantly altered the likelihood of a December rate cut.
• The conclusion is that a rate cut in December remains more likely than not, unless the private sector data unexpectedly improves.

"He said it's like when it's foggy then you may want to slow down."