Big Layoffs Are Scary, but the Job Market’s Foundation Is Still Strong

Parts of Maine’s Marginal Way have eroded due to storm damage. The U.S. labor market also seems to have suffered erosion, but remains in decent shape. (Mary Katherine Wynn / Dreamstime)

Key Points

• The U.S. labor market shows resilience despite economic uncertainty, with initial jobless claims estimated to have fallen to 220,000.
• Consumer spending remains strong, with credit-card spending per household up 0.8% in the year ended Oct. 25, supporting corporate revenue.
• Small businesses and sectors like hospitality and transportation are showing increased hiring, with hospitality payroll growth up 13.8% in October.

One of the best views of waves breaking off Maine’s rugged coast can be seen from Ogunquit’s Marginal Way, a coastal cliff walk in the southern part of the state. But storms and erosion have taken a toll, threatening the structural integrity of the roughly 1.5-mile trail. Erosion, by its nature, can weaken foundations over time, leading them to crumble under pressure.

The U.S. labor market looks to be undergoing a similar sort of erosion, with hiring stalled as employers weigh months of economic and policy uncertainty. Yet, while conditions may not be as “stable” as Federal Reserve Chair Jerome Powell stated this past week, there are indications the market’s foundation is much stronger than that of Marginal Way.

For one, the number of people filing for unemployment benefits hasn’t shot up, at least not yet. The Labor Department hasn’t released official estimates of weekly initial jobless-claim volumes since early October, due to the government shutdown, which began Oct. 1. But Citigroup economists estimate on the basis of available state data that initial jobless claims fell to 220,000 filings for the week of Oct. 25 from 232,000 in the prior week.

That alone signals the number of Americans losing their jobs, even in the midst of a government shutdown, hasn’t reached alarming levels. Mike Reid, senior U.S. economist at RBC Capital Markets, credits healthy corporate fundamentals, noting that profit growth was strong in the third quarter. Reid says he would be concerned if weekly claims rise above 275,000.

Higher-income households, bolstered by stock market and home-equity gains, have continued to spend, boosting corporate revenue and earnings and driving broader economic growth. Bank of America reports that total credit-card spending per household rose 0.8% in the year ended Oct. 25. That has helped keep employment in the retailing business “surprisingly stable” in recent months, says Lisa Simon, chief economist at Revelio Labs, which maintains a workforce database.

Moreover, more small businesses said in the latest National Federation of Independent Businesses survey that they are planning to hire. The hospitality sector posted the strongest rebound in hiring in October, with monthly payroll growth up 13.8%, breaking a two-year pattern of October declines, according to data from Homebase—a provider of employee management software to about 150,000 small businesses, which collectively employ about two million people. The transportation and logistics sector recorded monthly payroll gains of 4.8% in the month.

Education and healthcare, which have driven much of the job growth this year, likely will continue to add jobs as well, Revelio’s Simon says.

Private payrolls, in general, may have ticked higher in recent weeks. ADP reported on Tuesday that total private employment grew by a four-week moving average of 14,250 jobs in the week ended Oct. 11, up from a four-week average gain of 10,750 jobs in the week ended Oct. 4.

The pickup suggests that the hiring freeze that has plagued much of the labor market in recent months may be easing, although the recovery is “tepid,” says ADP chief economist Nela Richardson. She cautioned that the weekly pulse data are estimates and that recent hiring patterns have been volatile week to week.

To be sure, the job market isn’t as robust as it was a year ago, or even back in April—and the risk of more layoffs shouldn’t be discounted. Data from Indeed, a leading job-search website, show that job-posting levels are trending down month over month in nearly every industry sector, even though posting levels in the aggregate are still 2% above a prepandemic baseline.

Small businesses, which employ nearly half of all U.S. private sector employees, have been especially conservative in their hiring decisions. Only three of 13 industries showed positive momentum in October on a smoothed three-month basis, Homebase noted.

“We probably have hit the bottom in terms of the deceleration of employment growth,” says Blerina Uruci, chief U.S. economist at T. Rowe Price.

But Uruci doesn’t expect to see 100,000 monthly payroll additions again soon.

Amazon.com, General Motors, Paramount Skydance, and United Parcel Service all announced significant workforce reductions over the past week that collectively totaled more than 65,000 job cuts. So far, layoffs have been driven primarily by company or industry-specific issues.

In the past year, town officials in Ogunquit approved plans to reinforce Marginal Way and fortify it against future erosion. So, too, the U.S. labor market can be shored up by continued consumer spending, business investment, and policies that promote economic growth. The latest layoff headlines sowed fears of a jobs recession, but the reality, so far, looks more encouraging.

Write to Megan Leonhardt at megan.leonhardt@barrons.com