Stocks are lower this morning as the “software as a selloff” trade continues. Bonds and MBS are up.
Job cuts surged in January, according to the Challenger, Gray and Christmas Job Cut report. Last month, nearly a quarter of a million job cuts were announced, which was the highest January since 2009. “Generally, we see a high number of job cuts in the first quarter, but this is a high total for January. It means most of these plans were set at the end of 2025, signaling employers are less-than-optimistic about the outlook for 2026,” said Andy Challenger, workplace expert and chief revenue officer for Challenger, Gray & Christmas.
Transportation was hit the hardest after a layoff announcement from UPS. Tech also was hit hard after layoff announcements from Amazon. Hiring plans were around 5,000 which was again the lowest since 2009.
Notwithstanding the January Challenger numbers, there continues to be a big difference between consumer confidence and the actual numbers in the labor market. The current consumer confidence numbers are at similar levels as the depths of the Great Recession, or the 1980-1981 recession, which was a doozy. If you look at the unemployment rate of 4.4%, an economist in the 1980s would have figured consumers would be jumping for joy.
After COVID, the negative correlation between the unemployment rate and consumer confidence broke down. The University of Michigan Consumer Sentiment Survey noted there is a big partisan breakdown – currently Republicans have a much more sanguine view of the economy than Democrats. They haven’t been tracking the partisan split for long, so it will be interesting to see if that dynamic flips once we get a Democrat in the White House.
I suspect the explanation lies in the fact we now live in media silos, where Team Blue media highlights all of the negative economic numbers while Team Red media highlights the positive ones. Unemployment is at 4.4%, Q3 GDP rose 4.4% in the fourth quarter, and the Atlanta Fed GDP Now index predicts GDP will grow at 4.2% in the first quarter.
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Fed President Tom Barkin said he expected the US economy to remain resilient in 2026 and that productivity would continue to help in the fight against inflation. He compared the current boom in AI with the productivity boost we saw in the 1990s with the massive increase in PC capability and the early days of the Internet.
It was “a different question than the one we’re living with now,” with current inflation about a percentage point above target, not improving for the past year and the public contending with what is now a five-year inflation miss by the central bank, Barkin said.
“In their case, demand was quite strong … but inflation wasn’t. In our case, demand is not as strong, and inflation is higher. It is just a different conversation,” he said.
One of the biggest differences from the 1990s and today is that US was importing deflation as the Japanese economy collapsed. There is a possibility we could see a repeat of that with the Chinese economy as it wrestles with its own burst real estate bubble.
