Goldman Sachs Warns of US Labor Market Softening Amid Rising Layoffs

Goldman Sachs Sounds Alarm on US Labor Market

Researchers at Goldman Sachs have released a new report warning that the U.S. labor market may be starting to soften as private sector data reveals a rising tide of layoffs. The report indicates this weakening is present across multiple sectors, raising concerns about economic stability.

Record-High WARN Notices Signal Trouble

The report notes that the number of state filings related to planned mass layoffs – known as WARN notices – has surged to its highest level since 2016, excluding the pandemic peak. This sharp increase represents the most dramatic rise Goldman Sachs has observed in nearly a decade.

Analyzing Layoff Data Trends

According to employment consulting firm Challenger, Gray & Christmas, layoff announcements through October have climbed to levels typically only seen during economic recessions. The sectors driving this increase include technology, industrial goods, and food & beverage. Goldman Sachs economists believe this accumulation of negative signals represents “increasingly visible signs of softening” as workers find it increasingly difficult to find new jobs after losing their current positions.

Impact on Major Corporations

Even major U.S. corporations have not been immune to this cooling labor market. For example, Amazon announced plans this fall to cut approximately 14,000 corporate positions in an effort to streamline structure and embrace artificial intelligence.

Difficulty Finding New Employment

“A continued increase in layoff numbers would be particularly concerning because current hiring rates are low, making it harder than usual for unemployed individuals to find new jobs,” wrote Goldman Sachs economists Manuel Abecasis and Pierfrancesco Mei.

WARN Notices as an Early Indicator

These state-level filings – known as Worker Adjustment and Retraining Notification Act (WARN) notices – which companies with over 100 employees are legally required to submit prior to implementing layoffs, are effective gauges of employer behavior and can foreshadow upcoming storms in the labor market.

Additional Signs of Labor Market Slowdown

In addition to the increase in WARN notices, the bank has observed that more management teams of publicly listed companies are starting to openly discuss potential layoff plans during recent corporate earnings calls. Coupled with layoff data from Challenger, this strongly suggests that more companies are contemplating implementing layoffs and efficiency drives in the coming months.

Lag in Government Unemployment Data

Despite this, the bank notes that weekly initial unemployment claims remain low, meaning that official government reports may not yet reflect the full picture of a deteriorating labor market. The U.S. Bureau of Labor Statistics’ recent September jobs report even exceeded economists’ expectations.

Goldman Sachs points out that initial unemployment claims data often lags private sector layoff statistics by approximately two months, which may indicate that as winter approaches, there could be an upward trend in the number of unemployed individuals in the federal data.

The Role of Artificial Intelligence

Despite growing concerns about whether artificial intelligence is driving companies to reduce headcount, Goldman Sachs says that current evidence does not support the notion that AI is a primary driver of recent layoffs.

“While artificial intelligence may be an increasingly important consideration when making workforce decisions,” the Goldman Sachs researchers wrote, “there is still a lack of conclusive evidence that layoffs are being directly driven by AI.”