Alternative layoff data hint at greater labor market risks - Goldman

ALTERNATIVE LAYOFF DATA HINT AT GREATER LABOR MARKET RISKS -GOLDMAN

A significant uptick in alternative layoff indicators like the Challenger report and Worker Adjustment and Retraining Notification Act (WARN) notices, alongside slowing hiring momentum, may signal deeper risks to the health of the U.S. labor market, strategists at Goldman Sachs said.

The Wall Street brokerage pointed to a surge in private-sector layoffs in October—reaching the highest level outside of a recession, according to Challenger, Gray and Christmas reports.

They also cited a spike in real-time WARN notices, which hit its highest level since 2016, excluding the initial pandemic peak. Both indicators are used to gauge layoffs in the United States.

In the absence of official data due to the prolonged U.S. government shutdown, investors have been relying on alternative and private economic indicators to assess the health of the world's largest economy.

"A sustained increase in layoffs would be particularly concerning now because the hiring rate is low and it is harder than usual for unemployed workers to find jobs," Goldman Sachs said in a note dated November 10.

U.S. firms have been ramping up job cuts with the most recent being United Parcel Service UPS and Amazon.com's AMZN layoff announcements, indicating a transition in the workforce amid economic turbulence and technological change.

Instead of attributing the layoffs to the rise of AI, most companies referred to them as a streamlining measure, reducing clear evidence that the layoffs were directly motivated by the rise of the technology in workforce decisions, Goldman said.

Outside the tech sector, Goldman said AI has been cited often in layoff-focused discussions in the financial and real estate sectors.

Goldman sees a 0.5 percentage point or higher increase in the unemployment rate over the next six months at 20-25% compared with its previous estimate of a 10% increase, six months ago.

However, Goldman said initial jobless claims have not risen in tandem with these reports.

"Initial jobless claims—which are less noisy and more representative but could lag layoff announcements and WARN notices—remain low," Goldman Sachs said.