Jobs Report — Biggest Job Loss in Years, Fed Forced to Cut Rates

The U.S. labor market is experiencing significant job losses and a weakening trend, which is compelling the Federal Reserve to continue cutting interest rates, signaling an easier monetary policy ahead.

• U.S. labor market is experiencing significant job losses, nearing a million cuts year-to-date.

• Federal Reserve is compelled to cut interest rates, with high odds of cuts in October and December, due to weakening labor conditions.

• The overall weak economy is the primary driver of job cuts, not AI currently, but AI's future impact on employment is expected to be substantial.

The U.S. labor market is showing significant signs of weakening, with the private sector experiencing substantial job losses and overall job cuts nearing a million for the first time since 2020. This deteriorating labor market condition is a primary factor driving the Federal Reserve to cut interest rates, with high probabilities of cuts in October and December, aiming to revive the economy. While AI is not currently a major cause of job cuts, its future impact on employment is expected to be significant and is understated.

Evidence of Weakening Labor Market

• 00:00:35 The private sector lost 32,000 jobs in September, marking the biggest decline in two and a half years according to the ADP report. Additionally, companies have announced 946,426 job cuts year-to-date, a 55% increase from the previous year, with projections to surpass one million cuts, a level typically seen during recessions or periods of transformative technology. These figures indicate a stagnating labor market.

Federal Reserve's Response

• 00:01:51 The significant job losses are obligating the Federal Reserve to continue cutting interest rates, following a September cut, with high probabilities of further cuts in October and December. The CME FedWatch tool shows a 96.2% chance of a 0.25% rate cut at the October 29th meeting, lowering the Fed Funds rate to 4.0%, with an 86.3% chance of another cut in December, potentially bringing the rate to 3.75%. This signals an easier monetary policy that could boost asset prices.

Primary Drivers of Job Cuts

• 00:04:13 Government-mandated 'Doge' was cited as the biggest direct reason for job cuts, accounting for 293,000 jobs, with an additional 20,000 downstream impact. However, a weaker economy, evidenced by 'economic conditions' (208,000 cuts) and 'closings, restructuring, bankruptcy, and cost cutting' (over 300,000 cuts), is cumulatively responsible for a larger portion of the job reductions. Artificial intelligence has directly caused 17,375 job cuts, a relatively low number for now, but its future impact is anticipated to be much larger, with tariffs causing 5,847 cuts.

Deteriorating Job Openings

• 00:06:25 The JOLTS report shows a continuous decline in job openings, with less than one job opening for every unemployed worker, signifying a clear employer's market. This is a stark contrast to 2022, when there were two job openings per unemployed worker, and worse than the situation right before the pandemic. A ratio below one is characteristic of a recessionary environment with significant labor market slack, prompting the Federal Reserve to act to revive the economy.