Bank examines US economy and has alarming conclusion about the job market

A leading investment bank has offered an alarming diagnosis of the U.S. economy: The job market, long a pillar of resilience, may be in serious trouble. In their latest economic outlook, UBS economists led by Jonathan Pingle painted a picture of growing weakness that goes well beyond the headline employment numbers, warning of a growing risk to households and the broader recovery.

The most recent “US Economics Weekly” note from the Swiss bank was accompanied by restrained expectations regarding the imminent end of the federal government shutdown. Economists and market analysts have been without access to federal economic data for more than 40 days — something that former director of the Department of Employment Statistics Erica Groshen compared, at the end of October, to “flying blind”.

Also read: For Fed director, inflation in the US should not return to 2% in the next 2 years

If the government ends the shutdown, Pingle’s team said they expect September employment data to be released next week, along with October’s Consumer Price Index (CPI) inflation report.

Economists need this data more than ever. For much of the year, leading analysts — including Federal Reserve (Fed) Chairman Jerome Powell — have said that we are in a “low-hire, low-fire” job market.

For much of the year, employers were slow to hire and reluctant to fire, perhaps still traumatized by the “Great Resignation” of the pandemic era. UBS, however, is not alone on Wall Street in worrying that perhaps the “few layoffs” part is no longer so true.

Now, “there are plenty of workers available and, overall, companies probably don’t feel the need to keep employees on longer than necessary,” Veronica Clark, an economist at Citigroup Inc., told Bloomberg.

Meanwhile, Dan North, senior economist at Allianz Trade Americas, also told Bloomberg that “there are a considerable number of established companies making significant staff cuts.”

People are being fired — not rehired

Layoffs are occurring at a faster pace than previously reported, argues UBS, citing the fact that “unemployment insurance claims, layoff announcements and formal notices have exceeded the pre-pandemic pace. Even lagged data from Business Employment Dynamics — the US gold standard for measuring job creation and closures — shows that the pace of job losses is at or above the pre-pandemic period.”

In fact, cuts have accelerated sharply. October saw 157,000 layoffs announced by companies, according to consultancy Challenger, Gray & Christmas — the highest monthly total since July 2020. Technology and storage sectors were particularly affected, with cuts also linked to automation and artificial intelligence.

The total accumulated for the year? An impressive 760,000 seasonally adjusted cuts through October, far exceeding the same period in 2024 and being the highest since 2009 — post-global financial crisis.

Big companies are taking action: Amazon cut 14,000 corporate positions, UPS eliminated 48,000 jobs last year, and Target laid off nearly 2,000 employees at once.

Low hiring

Workers are being thrown into a growing pool of people who can’t find jobs.

UBS compares the job market to a bathtub: with constant outflows (layoffs) and inflows (hirings) slowing down, the water level (total employment) inevitably falls.

The hiring rate, as measured by several business surveys, has fallen to levels historically seen only in recessions. Excluding the health and social assistance sectors, which remain relatively stable, private sector payrolls have been decreasing by an average of 36 thousand jobs per month.

From the beginning of the year until August, employment measured by the main government survey has been falling by around 72 thousand vacancies per month.

This pace is “well below” what is necessary to keep up with population growth, much less to maintain a stable unemployment rate, which has now risen to the highest level since 2021.

The labor force participation rate has fallen, and more than 800,000 people have left the workforce, even though they say they still want a job.

Economists note that the broader measure of underemployment, known as U-6, has risen 0.6 percentage points since January to 8.1% — now 1.3 points above the end of 2019.

Notably, this surge isn’t just due to people being unemployed: More Americans are working part-time for economic reasons, another classic sign of weakening demand.

“This is exactly the opposite of what should happen in the face of a negative labor supply shock from immigration,” UBS wrote, referring to the Trump administration’s argument that immigration restrictions would make the job market more interesting.

Job openings continue to decline: In late October, Indeed.com reported that job postings fell to their lowest level since 2021, with nearly every industry showing annual declines.

Meanwhile, the weekly average of new unemployment claims is above its 2023 level, and continuing claims are approaching their highest level since the pandemic.

And even jobs that appear active, Pingle argues, may not actually be tied to real hiring efforts.

The “recession-compatible” hiring rate presents a gap “so large that, apparently, many of the vacancies are not receiving much effort to be filled”, according to Pingle.

“We can also look at the 14 million people who are not working, but want a job or are looking for one, or the 2 million who receive unemployment insurance. Given this abundance, it seems that at least some of the vacancies are not being filled urgently.”

Seasonal hiring and falling confidence

Not only are workers losing jobs, the market for new opportunities is also shrinking.

Seasonal hiring plans for the holiday season are well below pre-pandemic standards. Challenger, Gray & Christmas reports a combined total of 400,000 temporary positions advertised in September/October — well below the average of 625,000 between 2014 and 2019, and even lower than in recent years.

Big retailers like Target haven’t even released numbers, and the National Retail Federation estimates seasonal employment could be down 40% from last year.

This cooling is affecting consumer and business sentiment. The University of Michigan’s reading on consumer confidence fell to 50.3 in November, just above the record low recorded in 2022.

Fewer households are reporting that jobs are plentiful, and the share expecting unemployment to rise next year has soared to levels not seen since the recessions of the 1980s. Among small businesses, optimism “struggles to gain traction” amid inflation fears and ongoing job market turmoil.

The Fed weighs its options

Federal Reserve officials are increasingly divided: some warn that the risk to jobs now rivals concerns about inflation.

While some see an argument for interest rate cuts to support the job market, others fear that inflation is not yet under control.

A Fed governor admitted she was concerned that “the job market could deteriorate very quickly,” urging caution and flexibility with each new set of economic data released.

If layoffs continue at this rate and hiring continues to slow down, the job market is heading towards a “more evident contraction”. And this, they warn, could soon undermine family confidence, consumption — and the entire economic recovery.

“If a bathtub is draining faster and faster while the faucet remains the same, the water level will start to drop. That’s a material risk to the economic outlook.”