U.S. companies' layoffs largest in 22 years... employment shock hits amid 'AI bubble' debate

Markets stagger amid economic slowdown concerns

Expectations for a December rate cut surge

The scale of layoffs by U.S. companies reached the largest in 22 years as of October. With the 'artificial intelligence (AI) bubble' debate emerging and an employment shock added, concerns about a U.S. economic slowdown are growing. As a result, on the 6th (local time) the three major New York stock indexes — the Dow, S&P 500 and Nasdaq — all plunged.

U.S. employment consulting firm Challenger, Gray & Christmas (CG&C) said in its report that the scale of layoffs by U.S. companies amounted to 153,074 people last month. This is a 183% increase compared with September (54,064 people). It is the largest for October since 2003. Andy Challenger, CG&C's chief revenue officer, cited AI adoption and weakening consumer and corporate spending as backgrounds and pointed out, "It is becoming more difficult for laid-off people to find new jobs quickly, which could further weaken the labor market."

The report came amid a situation in which the release of the government's official employment indicators has been delayed for more than a month due to a U.S. federal government shutdown (temporary work stoppage). Michael Green, chief strategist at Simplify Asset Management, said, "The CG&C report disappointed the market and raised the prospect that the labor market is weakening faster than the U.S. central bank (Fed) perceives." Earlier, job site Indeed said that as of the 24th of last month its job postings index fell to 101.9 (February 2020=100).

U.S. big tech has already carried out large-scale layoffs. Amazon recently announced it would cut 14,000 headquarters staff due to expanded AI adoption. Microsoft (MS) said in July it would cut 9,000 jobs, and Meta decided to reduce about 600 people at its AI research organization Superintelligence Labs. There are criticisms that AI adoption is leading to employment reductions.

Warnings about an AI bubble continued. Andrew Bailey, governor of the Bank of England (BOE), said at a press conference that, "(There is) still quite a way to go before (AI) is actually proven," and added, "There may be a bubble." On the day, AI-related stocks such as Nvidia, Palantir and AMD mostly plunged.

As concerns about an economic slowdown grew, expectations for a December rate cut also increased. According to the Chicago Mercantile Exchange (CME) FedWatch tool, in the federal funds futures market the probability that the December benchmark rate would be cut by 0.25% points was 69%, up from 62% the previous day.

New York=Shin-young Park, correspondent / Dayeon Lim, reporter nyusos@hankyung.com