One of the main reasons for the decline in the past week is the significant disagreement within the Federal Reserve regarding interest rate cuts in December. The conservatives led by Powell believe that a rate cut is unnecessary in December. However, the layoff tracking data released by Goldman Sachs indicates that the U.S. labor market is transitioning from 'overheating' to 'weakening', with the probability of rising unemployment in the coming months significantly increasing.

For most of this year, this indicator has remained in the range of -2 to -1, typical of a 'labor shortage + economic resilience' structure. However, since October, the layoff indicator has shown the most significant systematic increase in the past three years, quickly returning to around 0.

More importantly, this is not caused by a single industry or a single indicator, but rather a simultaneous rise in seven components: initial jobless claims, JOLTS layoff rate, CPS layoffs, Challenger layoff announcements, WARN notices, and mentions of layoffs in corporate earnings reports.

Historically, such a simultaneous increase has only occurred in the years 2007, 2008, and 2020, indicating that the turning point in the labor market has already emerged. If this upward trend continues, the likelihood of a significant increase in unemployment in the next 3 to 6 months will grow.

Once the unemployment rate rises from 4.1% to 4.55%, it will trigger the Federal Reserve's most sensitive Sahm Rule, indicating that the economy has already entered or is about to enter a recession. By then, even if the Federal Reserve is reluctant to cut rates, it will have to face real economic pressures.

Forwarded from Ni Da