Since the Federal Reserve launched a radical interest rate hike in March last year, investors have been paying attention to when the labor market will experience weakness.
Now, a Wall Street economist has finally sensed signs of large-scale layoffs finally starting, which may soon be reflected in key economic data closely monitored by the market.
Torsten Slok, Chief Economist of Apollo Global Management, said that data collected under the Workers' Adjustment and Retraining Notice Act (WARN) shows that an increasing number of companies are notifying employees in advance of impending factory closures or layoffs.
According to the WARN Act introduced in the late 1980s, many large employers must notify employees and state governments 60 to 90 days in advance when large-scale layoffs are about to occur. The data cited by Slok is based on this estimate by the Cleveland Federal Reserve Bank.
Slok used a simple statistical model to predict that the increase in unemployment will soon be reflected in the weekly data on unemployment benefits, which tracks the number of Americans applying for unemployment benefits each week.
Slok said, "The unemployment rate regression prediction using WARN notifications shows that the number of first applications for unemployment benefits in October will rise to levels between 250000 and 300000 in the coming weeks
If there is a significant increase predicted by Slok, it will be an important data. According to the latest data, the number of Americans applying for unemployment benefits in the previous week slightly increased to 207000, but it is still close to the low point during the pandemic.
Or change the direction of the economy
Currently, monthly data from the US Department of Labor shows that 336 new jobs were created in September, far exceeding the expected 170000; The growth rate of wages has slowed down, but a few months ago, the employment data was revised up, breaking the continuous downward trend.
Market participants interpret existing data as indicating that the Federal Reserve will successfully guide the US economy towards a soft landing, which means curbing inflation while not seriously disrupting the labor market and economy.
However, any sign that layoffs are beginning to increase may seriously affect investors' expectations of the direction of the U.S. economy, which may affect the market, especially the U.S. bond market and stock market.
And historical data also shows that once layoffs begin, they will roll like snowballs, getting bigger and bigger.
Claudia Sahm, an influential former Federal Reserve economist, used this model as the basis for the "Sahm Rule". The "Sam's Rule" aims to judge the beginning of an economic recession through a sharp increase in unemployment, serving as an early indicator for policy makers to help them take action more quickly and actively, supporting the economy and workers.