Labor Market Cools as Layoffs Rise and Hiring Stalls

This week’s economic data includes: (1) Job Openings and Labor Turnover

Survey (JOLTS) for December, (2) Challenger Job Cuts Report for January, and (3) weekly initial jobless and continuing claims.

KEY SUMMARY:

The December JOLTS report shows a labor market that continues to cool, with job openings dropping to their lowest level since 2020, hiring and layoffs remaining subdued, and voluntary resignations holding steady – reinforcing a “low‑hire, low‑fire” environment with limited wage and inflation pressures.

The December JOLTS report showed a notable cooling in labor demand, with job openings falling by 386,000 to 6.5 million – the lowest since 2020 and far below expectations. The job openings rate, which measures job openings as a share of total labor demand (filled jobs plus open positions), declined to 3.9%, reflecting softer employer appetite for new workers. Professional and business services, retail trade, and finance and insurance saw the steepest drops, with small and mid‑sized firms contributing significantly to the decline. Meanwhile, the ratio of openings to unemployed workers fell to 0.87, signaling that there are currently more job seekers than available jobs and reducing wage‑driven inflation risk. Hiring improved modestly for the month but remained subdued on a trend basis.

Layoffs increased slightly but stayed within a stable, low range, while quits – voluntary resignations initiated by workers – edged up to 3.20 million but continued to reflect worker caution rather than confidence. Gains in retail trade, information, and healthcare offset declines in professional and business services. Taken together, the data shows a labor market that is easing but still stable: demand for new workers is cooling, layoffs remain low, and workers appear hesitant to job‑hop. Overall, the report reinforces a “low‑hire, low‑fire” environment with limited upward wage pressure.

The January Challenger Report showed a sharp rise in announced layoffs—driven largely by a few major companies and key sectors—alongside the weakest January hiring plans since 2009, signaling a cautious but not broadly deteriorating labor market outlook.

The January Challenger Job Cuts Report showed a sharp rise in announced layoffs, with companies disclosing 108,435 planned cuts—up significantly from both a year earlier and December, and the highest January total since 2009—driven mainly by transportation, technology, and health care & products, and heavily concentrated among a few large firms such as Amazon, UPS, and Dow Chemical. While the elevated figure reflects a more cautious business outlook for 2026, the sector‑specific nature of the cuts suggests it is unlikely to signal broad-based weakening. At the same time, companies announced just 5,306 planned hires, the lowest January level since 2009, reinforcing the view of a cooling labor environment.

Initial and continuing jobless claims rose modestly in late January—largely due to temporary, weather‑related disruptions—but underlying trends remained stable, with no signs of emerging long‑term unemployment pressures.

Initial jobless claims rose by 22,000 to 231,000 for the week ending January 31—exceeding expectations and last year’s level—with the four‑week average also edging higher, largely reflecting temporary layoffs tied to severe winter weather that disrupted businesses across several states. Continuing claims increased by 25,000 to 1.844 million but remained below both expectations and year‑ago levels, and the four‑week average continued to drift down, indicating that while short‑term unemployment saw a weather‑related bump, there is still no evidence of a broader or sustained rise in long‑term joblessness.

Equity markets saw sharp tech‑led volatility before a strong Friday rebound that pushed the Dow above 50,000, while Treasury yields fell on soft labor data; markets maintained expectations for Fed rate cuts in June and October 2026.

Equity markets were highly volatile this week, driven largely by sharp swings in technology stocks. A mid‑week selloff hit major tech and AI names—including Amazon, Microsoft, and Alphabet—amid concerns that heavy AI data‑center spending may not pay off quickly. SaaS companies also added pressure due to fears that new AI models, particularly from Anthropic, could threaten traditional software models. Despite a strong rebound on Friday that pushed the Dow Jones above 50,000 for the first time, both the S&P 500 and Nasdaq still ended the week with losses. Traditional sectors such as industrials, energy, and financials helped offset weakness in tech, while softer labor‑market data and rising jobless claims contributed to a broader risk‑off tone earlier in the week.

Treasury yields fell across most maturities, reflecting weaker‑than‑expected labor data and rising expectations that the Federal Reserve may shift more focus toward labor market support. The yield curve moved modestly lower, particularly in the mid‑ and long‑term tenors. Rate‑cut expectations were little changed, with markets still anticipating cuts in June and October 2026; the probability of a June cut rose from 87% to 97%. If enacted, these moves would lower the federal funds rate’s upper bound from 3.75% to 3.25%, while no cuts are expected for 2027.

***************************************************************************************************************

DETAILED ANALYSIS:

JOLTS – December Update: 

The Bureau of Labor Statistics (BLS) reported that job openings fell by 386,000 in December to 6.5 million—the lowest level since September 2020 and below market expectations of 7.25 million. This represents a year‑over‑year decline of 966,000. The job openings rate, which measures demand for labor as a percentage of total jobs (employment plus job openings), decreased to 3.9% in December from 4.2% in November. Both the monthly and annual declines indicate softening demand for workers. The December drop was driven primarily by sharp decreases in professional & business services (-257,000), retail trade (-195,000), and finance & insurance (-120,000). Businesses with 10–49 employees saw the largest decline in openings (-143,000), followed by those with 250–999 employees (-112,000).

The ratio of job openings to unemployed workers—a metric the Fed closely watches as a proxy for the balance between labor demand and supply—fell to 0.87, its lowest since March 2021, indicating slightly more unemployed individuals than available jobs. With this excess labor supply, wage pressures are expected to remain subdued, meaning the labor market is not currently a significant source of inflation pressure.

Hiring increased by 172,000 to 5.29 million in December, led by real estate rental & leasing (+38,000) and state & local government excluding education (+36,000). The hiring rate rose to 3.3% in December from 3.2% in November. The three‑month moving average for December was 5.26 million, remaining within the 5.2 to 5.3 million range seen over the past five months and down slightly from the 5.3 to 5.4 million range maintained since mid‑2024. This indicates hiring remained subdued even as the December monthly figure improved.

Layoffs increased by 61,000 to 1.76 million—above expectations and up year‑over‑year—driven largely by transportation, warehousing & utilities (+103,000), partially offset by a decline in finance & insurance (-20,000). The layoffs rate held steady at 1.1% in December. The three‑month moving average was 1.77 million, consistent with the narrow 1.76 to 1.77 million range of the past five months, indicating layoffs remained subdued.

Voluntary resignations (quits) rose by 11,000 to 3.20 million, exceeding expectations. Increases occurred in retail trade (+87,000), information (+28,000), and healthcare & social assistance (+28,000), largely offset by a decline in professional & business services (-151,000). The quits rate held steady at 2.0% in December. The three‑month moving average ticked up to 3.12 million from November’s 3.10 million, remaining within the 3.0 to 3.1 million range of the past five months. This suggests workers remain cautious about pursuing new employment opportunities with higher wages.

Overall, the December JOLTS report highlights a cooling demand for new workers as businesses continue to right‑size their workforces. It also shows an excess supply of labor, while both layoffs and quits rates held steady at low levels—factors that limit wage and inflation pressures. The data continues to reinforce a “low‑hire, low‑fire” labor market environment.

Challenger Job Cuts Report – January Update:

The Challenger Job Cuts Report, published monthly by outplacement firm Challenger, Gray & Christmas, tracks announced corporate layoffs and hiring plans in the U.S. that are scheduled to be implemented over time. It is important to note that announced layoffs may not be fully actualized if business conditions change.

In January, companies announced 108,435 job cuts—up 118% from 49,795 a year earlier and up 205% from 35,553 in December. This is the highest January total since 2009, when 241,749 cuts were announced, and the highest monthly figure since October 2025, when 153,074 cuts were reported. January’s cuts were driven primarily by the transportation, technology, and health care & products sectors. Nearly half of all job cuts announced during the month came from just three companies: Amazon, UPS, and Dow Chemical. The most frequently cited reasons were contract losses, market and economic conditions, and restructuring. Overall, the elevated January total signals a more cautious business outlook heading into 2026 and has heightened concerns about a softening labor market; however, because the surge was concentrated in specific sectors and companies, it does not appear likely to broaden across the economy in the near term.

Companies also announced 5,306 planned hires in January—the lowest total for the month since 2009. This figure is down 13% from the 6,089 hiring plans announced a year earlier and down 49% from the 10,496 hiring announcements in December 2025.

Jobless Claims – Week Ending January 31:

The Labor Department reported that initial jobless claims increased by 22,000 to 231,000 for the week ending January 31, compared with 209,000 the prior week and above market expectations of 212,000. Claims were also higher than the 222,000 recorded in the same week last year. The four‑week moving average rose modestly to 212,250—up 6,000 from the prior week’s unrevised 206,250. The increase in initial claims likely reflects temporary unemployment stemming from business disruptions caused by heavy snow and freezing temperatures, as evidenced by significantly higher claims in Pennsylvania, New York, New Jersey, Illinois, Missouri, Ohio, and Wisconsin.

Continuing claims, which reflect the number of individuals receiving unemployment benefits, rose by 25,000 to 1.844 million for the week ending January 24, slightly below expectations of 1.850 million. They also fell below the 1.874 million level recorded in the same week of 2025. The four‑week moving average dipped to 1.851 million from 1.866 million, showing no emerging upward trend in long‑term unemployment.

***************************************************************************************************************

MARKET ANALYSIS:

Equity Market Weekly Recap

Equity markets experienced significant volatility this week, marked by a sharp mid‑week sell‑off in technology stocks followed by a strong rebound on Friday, when the Dow Jones Industrial Average closed above 50,000 for the first time in history. Despite Friday’s rally, both the S&P 500 and Nasdaq ended the week with net losses after a three‑day decline driven by weakness in technology and artificial intelligence stocks. Early in the week, investors sold off major “Big Tech” names—including Amazon, Microsoft, and Alphabet—amid concerns that heavy capital spending on AI data centers may not generate returns quickly enough. Also, SaaS (Software-as-a-Service) tech companies contributed significantly to stock market volatility due mainly to fears that new, advanced AI tools (specifically from Anthropic) could make traditional SaaS business models obsolete. While tech underperformed for most of the week, traditional sectors such as industrials, energy, and financials showed resilience, helping propel the Dow to its milestone. Additionally, softening job demand and the rise in initial jobless claims contributed to a broader “risk‑off” tone before Friday’s recovery.

Weekly and Year-To-Date (YTD) Performance Highlights:

• Nasdaq: -1.84% (weekly) & -0.91% (YTD), closing at 23,031
• S&P 500: -0.10% (weekly) & +1.27% (YTD), ending at 6,932
• Dow Jones Industrial Average: +2.50% (weekly) & +4.27% (YTD), closing at 50,116
• Russell 2000: +2.17% (weekly) & +7.59% (YTD), ending at 2,670

Treasury Market Update

Treasury yields declined across most maturities this week, with the drop more pronounced in the mid‑ to long‑term tenors. The moves were driven largely by weaker‑than‑expected labor market data, which increased expectations that the Fed may place greater emphasis on supporting the labor market. As a result, the yield curve edged modestly lower compared with the prior week:

• 2-year yield: 3.50% (-0.02%)
• 5-year yield: 3.76% (-0.03%)
• 10-year yield: 4.22% (-0.04%)

Rate Cut Expectations

Like last week, markets continue to expect rate cuts in June and October 2026, with the probability of a June cut moving higher – from 87% to 97%. No cuts are projected for 2027. If implemented, the two reductions would lower the federal funds rate’s upper bound to 3.25%, down from the current 3.75%.

***************************************************************************************************************

NEXT WEEK’S ECONOMIC CALENDAR:

Key scheduled releases include:

• 2/10 (Tuesday):
  • NFIB Small Business Optimism (January)
  • Retail Sales (December)
• 2/11 (Wednesday):
  • Employment Situation (January)
• 2/12 (Thursday)
  • Weekly Initial and Continuing Jobless Claims
  • Existing Home Sales (January)
• 2/13 (Friday)
  • CPI (January)

***************************************************************************************************************

For a visual representation of this week’s economic review, you can view or download the slide deck here: 02.06.2026 CBC Weekly Economic Update Slides

Mark Yoon, CFA CPA

EVP & CFO of Commercial Bank of California

Thomas McCullough

EVP of Commercial Bank of California

_______________________________________________________________________

All content available on this material is general in nature, not directed or tailored to any particular person, and is for informational purposes only. Any of its content is not offered as investment advice and should not be deemed as investment advice or a recommendation to purchase or sell any specific security. The information contained herein reflects the opinions and projections of Commercial Bank of California (CBC) as of the date hereof, which are subject to change without notice at any time. CBC does not represent that any opinion or projection will be realized. The information contained herein has been obtained from sources considered reliable, but neither CBC nor any of its advisors, officers, directors, or affiliates represents that the information presented on this material is accurate, current, or complete, and such information is subject to change without notice.