Layoffs Increase, Potentially Welcome News for the Federal Reserve

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Layoffs are a new trending theme, which is potentially welcome news for the Federal Reserve.

The Google Trends chart below shows interest in the term “layoff” tripling since the beginning of October. It’s now back to its highest level since May 2020 near the start of the coronavirus pandemic.

The latest big announcement came from Meta Platforms (META), which confirmed plans to eliminate 11,000 jobs. The decision followed similar moves by other technology companies like Microsoft (MSFT), Salesforce.com (CRM), Intel (INTC) and Lyft (LYFT). Twitter could reportedly eliminate half its positions after being acquired by Tesla (TSLA) CEO Elon Musk. Seagate Technology (STX) announced 3,000 layoffs in late October. Reuters also reported last week that Morgan Stanley (MS) could trim investment-banking jobs because of less dealmaking.

Google Trends showing the 12-month interest in the term “layoff.”

Challenger, Gray & Christmas, which helps laid off workers, announced last week that job cuts rose 13 percent in October 33,843. That was the highest level since February 2021.

Fed Policy

While the news is difficult for Americans losing their jobs, it could be welcome for investors worried about the hawkish Fed. Last week, Chairman Jerome Powell described the labor market as “extremely tight,” and “out of balance, with demand substantially exceeding the supply.”

More layoffs could increase unemployment. They could also reduce the upward pressure on wages, which rose 4.7 percent in October. Those increases remain well above the 3.5 percent peaks before the pandemic and opening. Both higher unemployment and lower wage growth would make it easier for Fed policymakers to consider slowing their rate increases.

Corporate Earnings

Job cuts could have another potentially positive impact on corporate profits. Earnings rose just 2.2 percent in the third quarter, according to FactSet. It was the weakest growth in two years as profit margins continued to erode.

META highlighted this link between job cuts and earnings. The parent of Facebook cratered on October 27 after CEO Mark Zuckerberg resisted layoffs. But it jumped as much as 8 percent yesterday after he changed course yesterday.

Meta Platforms (META), daily chart, showing key events.

Dual Mandate

The Fed has a “dual mandate” of controlling inflation an promoting full employment. Policymakers have entirely focused on inflation this year. However more layoffs could start to make them worry about their second mandate and eventually reduce their willingness to hike rates.

Speaking of inflation, investors will get more information on prices this morning when the Bureau of Labor Statistics reports the Consumer Price Index (CPI) for October. There have been potentially positive signs recently, including lower home prices and continued declines in gasoline. Last month’s manufacturing reports also showed prices dropping for the first time in 2-1/2 years.

In conclusion, monetary policy has been a dominant concern for investors this year. While inflation is still a major issue, the labor market could be gaining importance. It’s still early in the game, but jobs could be starting to move in the direction needed for the Fed to think about pausing.

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