Close on the heels of a positive payrolls report from ADP, a weak report from Challenger challenged ADP's premise of payroll growth.

With the government shutdown there are no reports from the Bureau of Labor Statistics, and the ADP payrolls and Challenger layoffs reports provide a window into employment conditions. Challenger tracks job layoffs and firings.

Challenger's report was weak: Layoffs surged in October as employers reduced and replaced headcount with artificial intelligence tools, signaling potential trouble ahead for the labor market. The largest layoffs were from tech firms caused by restructuring due to AI integration with 33,281 cuts, nearly six times the level in September.

The numbers were severe: Job losses totaled 153,074, a 183% surge sequentially and 175% higher YoY, getting the dubious distinction of being the worst loss for any October since 2003. This has been the worst year for announced layoffs since 2009.

According to Bloomberg:

“Like in 2003, a disruptive technology is changing the landscape,” said Andy Challenger, workplace expert and chief revenue officer at the firm. “At a time when job creation is at its lowest point in years, the optics of announcing layoffs in the fourth quarter are particularly unfavorable.”“Some industries are correcting after the hiring boom of the pandemic, but this comes as AI adoption, softening consumer and corporate spending, and rising costs drive belt-tightening and hiring freezes. Those laid off now are finding it harder to quickly secure new roles, which could further loosen the labor market,” Challenger said.

Challenger monthly numbers tend to be highly volatile, and perhaps erroneous since the accelerated pace of layoffs hasn't showed up in state-level weekly jobless claim filings that continue to come in despite the shutdown.

Also adding to the a weaker economic environment is the recalcitrance of Federal Reserve officials to cut rates in December. While they expressed concern about a softening labor market at their Oct FOMC meeting, they have not pencilled in any cuts for December without seeing progress in inflation, still stubborn at the 3% level. 

Besides tech, Consumer products also saw a sharp gain to 3,409 layoffs while nonprofits, a victim of 37 day government shutdown and DOGE cuts, listed 27,651 cuts year to date, up 419% from the same point in 2024.

All in all, employers laid off  1.1Mn this year, a 65% increase YoY; the highest since the Covid pandemic year of 2020. October saw the highest total for any month in the fourth quarter since 2008.

Don't buy the dip: The S&P 500, which saw a decent amount of dip buying yesterday lost its shine with this report. It ended the day 1.12% lower, while the more volatile Nasdaq Comp ended 1.9% lower.

I believe, that even as strong as dip-buying has been this year, a longer correction is on the cards and the Challenger report causing an almost 2% drop in the Nasdaq, suggests exhaustion and overbought conditions. I would stay on the sidelines for a bit. There are times when you don't blindly buy the dip and this is one of them.