Investment Bank Reveals Troubling Labor Market Insights in Economic Review
A recent analysis by UBS, a prominent investment bank, reveals critical concerns about the U.S. labor market, indicating it may be losing its resilience. Economists, led by Jonathan Pingle, highlighted a disturbing trend with implications for households and economic recovery.
Labor Market Insights from UBS
The latest report from UBS comes amidst uncertainties surrounding the federal government shutdown. Economists have been operating without significant federal economic data for more than 40 days, which Erica Groshen, former Bureau of Labor Statistics commissioner, likened to “flying blind.” UBS anticipates the release of September jobs data soon after the government reopens, along with the Consumer Price Index for October.
Declining Hiring Trends
Throughout much of the year, experts, including Federal Reserve Chair Jerome Powell, have characterized the jobs market as “low hire, low fire.” Employers exhibited reluctance to hire or lay off staff, a behavior likely shaped by the repercussions of the “Great Resignation.” However, UBS noted a shift in this dynamic; recent observations pointed to an increase in layoffs.
- October 2023 recorded 157,000 layoffs, the highest monthly total since July 2020.
- Total layoffs for the year reached 760,000, surpassing levels seen in previous years.
- Industries such as technology and warehousing faced significant job cuts, linked to advancements in automation and artificial intelligence.
Concerns About Employment Volume
UBS analysts described the labor market as akin to a bathtub: layoffs (outflows) remain steady while hiring (inflows) is declining. This results in a downward trend in total jobs. Private-sector payrolls, excluding healthcare, have decreased by an average of 36,000 jobs monthly. From January to August 2023, household employment fell by about 72,000 jobs each month.
| Key Employment Statistics | Figures |
|---|---|
| Monthly Layoffs (October 2023) | 157,000 |
| Year-to-date Layoffs | 760,000 |
| Private-sector Decline (Average Monthly) | 36,000 |
| Household Employment Decline (Average Monthly) | 72,000 |
Moreover, the unemployment rate has reached a post-2021 high, with Labor force participation waning. The underemployment measure, known as U-6, has also risen to 8.1%, reflecting a broader underutilization of the workforce.
Impacts on Holiday Staffing and Economic Sentiment
Adding to the bleak outlook, holiday hiring rates are below pre-pandemic norms, with reported roles for September and October totaling just 400,000. This indicates a decrease from an average of 625,000 roles during 2014–2019.
- Key retailers, including Target, have not announced holiday hiring figures.
- The National Retail Federation predicts a 40% drop in seasonal jobs compared to last year.
Consumer and business sentiment has also suffered. The University of Michigan’s consumer confidence index fell to 50.3 in November, reflecting growing apprehension among households regarding job availability and future unemployment.
Federal Reserve’s Dilemma
Discussions within the Federal Reserve have intensified, with diverging opinions on how to address the labor market’s challenges. While some advocates for interest rate cuts see the job risks as critical, inflation continues to weigh heavily on the economic decision-making process.
In conclusion, UBS warns that if layoffs continue at this pace while hiring remains sluggish, a marked contraction in the labor market may be imminent. The potential ripple effects could undermine household confidence, stymie consumer spending, and disrupt overall economic recovery.
