Green Shoots?

A general consensus has emerged that the labor market is deteriorating at a relatively quick pace, and some of the incoming data indeed backs that thesis.  We’ve all seen the headlines about big US companies, including Verizon, HP, FedEx and Apple, that are planning to shed tens of thousands of workers.  Those announcements are used to produce an index at Challenger, Gray & Christmas.  As you can see in the chart below, the index showed big spikes in layoff announcements for the months of February and October of this year.  For the year to date through November, Challenger pegs the layoff announcements at a cumulative 1.17 million – not a trivial amount.  In last week’s ADP employment report for the month of November, we received further evidence of a softening labor market.  In aggregate, private companies shed workers for the fourth time this year.  Even more ominous was the finding that small employers (from 1-49 employees) shed 120,000 positions in November even as medium (50-499) and large (over 500) companies added a total of 90,000 positions to their payrolls for the month.

The job losses at small businesses are particularly worrisome because small businesses (under 500 employs) employ nearly half of private-sector employees and typically account for an even larger percentage of job growth (61.1% from 1995 to June 2023 , according to the Small Business Association’s Office of Advocacy) .  The folks at ADP Research put that figure even higher: “Small businesses are called the engine of U.S. growth for a reason. Historically, they’ve created nearly two-thirds of new jobs in the United States. Even after the pandemic downturn, small employers led the way on hiring, accounting for more than 52 percent of job gains between 2021 and 2024. ”

But not all the indicators are worrisome.  Weekly initial jobless claims, which most economists believe is the most timely labor market indicator, continues to show that companies are holding onto the employees they have.  Initial claims plummeted to 191,000 for the week ended November 28th.  While that week included Thanksgiving, which could have distorted the number somewhat, the figure was still well below the consensus estimate and the lowest level since the week ended September 23, 2022.  It should be said, though, that continuing claims remain elevated, which reflects unemployed folks’ continued difficulty finding jobs.

Job openings is another metric tracked by the Labor Department, and those numbers are starting to look a little better as well.  After bottoming out at around 7.1 million in September 2024, job openings rebounded to about 7.7 million as of October of this year – not a huge increase, but certainly a stabilization.

But perhaps the most hopeful of labor market indicators is the hiring intentions of small businesses.  The National Federation of Independent Business produces a monthly diffusion index that tracks the hiring intentions of its membership, which generally consists of companies with employees of less than 250.  Index values are simply the percentage of respondents that expect to add to their payrolls minus the percentage of companies that expect to reduce payrolls.  The reading for November increased sharply to 19 from 15 in October and compared to a long-term average (since 1973) of about 11.  It’s likely that the sharp improvement in November reflects, in part, a renewed optimism now that the federal government has reopened.  Less tariff uncertainty is also probably a factor, as is the passage of the One Big Beautiful Bill (which will reduce tax rates for many businesses).  There is still a concern about businesses not being able to find quality candidates to fill their openings, but at least the demand for labor is there.

I could be early or I could simply be stretching for green shoots.  But I’m also pretty sure that the sky isn’t falling.  On the other hand, stock valuations were already assuming the sky wasn’t falling.  Stay vigilant, but stay invested.