Private Data Signals US Labor Market Weakness Amid Government Data Void
The ongoing US government shutdown is creating a near "black screen" for official economic data, forcing investors to seek out private data sources to get a glimpse of the state of the labor market.
Thankfully, on Thursday, investors found some information they could reference, but many were clearly unhappy with what they saw. According to Challenger, Gray & Christmas’s monthly update on hiring and layoff activity, US-based employers announced 153,074 cuts in October, a 175% surge on a year-over-year basis and a dramatic 183% increase from layoff announcements in September. That’s the highest number of October layoffs in 20 years and the highest for any month since 2008.
Some on Wall Street are attributing this data as one of the catalysts for the latest sell-off in US stocks Thursday and it also fueled a rally in Treasuries, driving the 10-year Treasury yield back down to around 4%.
The sell-off saw the S&P 500 fall more than 1% on Thursday. It’s the latest drop for the index after its worst single-day performance in nearly a month on Tuesday, and the S&P 500 is on track for its worst week since Oct. 10. The index is currently trading around 2.9% below its all-time closing high that it struck at the end of October.
What Does the Jobs Data Mean for Highly Valued Stocks?
During this three-year ongoing bull market in US stocks, the sheer size of the gains made by technology companies relative to the rest of the stock market has been a frequent point of concern.
The logic behind this worry is that if these concentrated bets start to wobble, as they did during the tariff turmoil back in April, investors chasing this small clutch of high-flying tech stocks could face steep losses.
The other argument that’s been supporting the market is that as long as American households have jobs, this rally can easily continue.
Thursday’s Challenger data adds to a recent string of disappointing labor market data, and it comes at a time when investors haven’t been able to access official employment data from the Labor Department for the second month in a row. This appears to be exacerbating long-running market worries: high stock valuations, bubbles in speculative areas, and skepticism about the staying power of the artificial intelligence trading craze.
“That’s an upward trend,” said Luke Tilley, chief economist at M&T Bank and Wilmington Trust, speaking about the Challenger report and the October ADP data released earlier this week. The ADP data showed that companies with fewer than 50 employees have shed over 130,000 jobs since April.
“Small firms have been cutting a ton of jobs since the tariffs were put in place,” Tilley told MarketWatch. He noted that, unlike large publicly traded companies, these layoffs often go unnoticed, but small firms account for around a third of total jobs nationwide.
“I think there’s just a lot of uncertainty in the economic outlook right now, which is going to lead to more volatility in the market,” Tilley said.
Hiring and Layoffs
In addition to reporting on layoffs, Thursday’s Challenger data also included hiring data. Brent Donnelly of Spectra Markets analyzed this data and produced a chart contrasting new hires versus job losers on a 12-month rolling basis.
In commentary shared with MarketWatch on Thursday, he showed that job losers have been exceeding new hires by the widest margin in roughly 15 years.
“If you are a believer in ‘employment doomerism,’ then this chart is a prophecy of a flood to come,” Donnelly said in the note.
To be sure, the Challenger data has its flaws. Donnelly noted that the data is not seasonally adjusted, and it is likely far more volatile than the official nonfarm payrolls report published by the Labor Department.
“I put more faith in nonfarm payrolls, but we don’t have nonfarm payrolls right now,” he added.
Andy Challenger, chief revenue officer at Challenger, Gray & Christmas, said that several factors may have contributed to the accelerating pace of layoffs in October. Some industries are downsizing following the hiring boom during the pandemic, when many companies were hoping to hoard labor.
But the increasing use of AI applications, weaker consumer and business spending, and cost-cutting measures triggered by rising costs may have also played a role.
“Currently displaced workers are finding it harder to quickly land new jobs, which could further loosen the labor market,” Challenger said in a news release issued early Thursday announcing the latest data.
Other private employment data collectively paint an increasingly grim picture of the labor market. According to Revelio Labs' Nonfarm Payrolls Nowcast, employment declined by 9,000 jobs in October. The company said that the decline was primarily driven by falling government employment.
In addition, private employment data released by ADP on Wednesday showed that it added 42,000 jobs last month, exceeding economists’ expectations. But as M&T Bank’s Tilley pointed out, signs of weakness still lie beneath the surface.
“The bottom line is the labor market,” Tilley said. “That’s where we are right now.”
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