One of our favorite labor market indicators is the one from Challenger, Gray & Christmas. It tracks the number of layoffs that companies publicly announce each month. It’s helpful because it gives us an early read on what might be happening in the job market, especially when the numbers start to shift in a meaningful way.
And lately, they have.
In May, companies announced more than 93,000 job cuts. That brings the 12-month total to over one million. As you can see in the top chart, we’re still far below the extremes of COVID or the financial crisis, but layoffs have clearly picked up. The dotted line smooths out the monthly swings, and you can see that the trend has turned higher.
The bottom chart shows the year-over-year change in layoffs. This is the key part of the indicator that we focus on. May’s total was 47% higher than a year ago. Smooth that by 12 months, and you get a number that is well above zero—a bearish sign for equites. That’s because this kind of acceleration often shows up before broader labor market data starts to weaken—such as unemployment and payrolls.
Indeed, jobless claims just hit a nine-month high, productivity was revised lower in the first quarter, and labor costs continue to climb. Basically, businesses are starting to feel the pressure.
This indicator is also one of the inputs in our Economic Activity composite, which has now settled into Neutral territory. While most of the signals in our broader economic model remain positive, the rise in layoffs stands out. Historically, this series tends to move ahead of broader labor market trends, so we’re watching it closely.
Bottom line? Most economic data still looks solid, but the uptick in layoffs is a yellow flag. It may be the first sign that the job market’s momentum is starting to fade, so it’s something to keep an eye on in the second half of the year.
This is intended for informational purposes only and should not be used as the primary basis for an investment decision. Consult an advisor for your personal situation.
Indices mentioned are unmanaged, do not incur fees, and cannot be invested into directly.
Past performance does not guarantee future results.