From ADP to Challenger: The Labor Market Is Flashing Yellow

• ADP hiring data for October was much weaker than the seasonal average.

• Challenger job cut numbers were far above the typical pace.

• The Chicago Fed’s unemployment rate forecast is at 4.4%.

Hiring remains stuck in low gear, and the latest numbers show why the Fed can’t sit still…

At the start of this week, I laid out the case for why labor market data would show hiring remained weak in October. The gauge I’ve built, based on monthly surveys from Regional Federal Reserve Banks covering manufacturing and services firms, showed that demand for new workers worsened compared to September.

As you’ll notice in the chart above, after a brief mid-year bounce, my combined index showed contraction deepened in October, driven mostly by services. You’d have to go back to the pandemic to find a weaker result.

With the government still shut down and official data on hold, alternative indicators like these take on added importance. They help investors navigate what the economic and policy landscape might look like once Washington reopens and the numbers start flowing again.

Since I published my initial analysis, several other labor market indicators have come out. ADP, the Chicago Fed, and Challenger, Gray & Christmas have all released updates on hiring, layoffs, and unemployment. Based on what I’m seeing, the data confirms what I expected — the employment picture has grown weaker. That should strengthen the case for another rate cut from the Fed in December and help fuel a steady rally in the S&P 500.

But don’t take my word for it, let’s look at what the data’s telling us…

ADP Hiring

Each month, payroll processor ADP releases a private-sector snapshot of job creation across the U.S. economy. It’s based on payroll records from millions of businesses and often serves as a preview to the official government numbers. While it doesn’t always match the BLS report, it’s still a useful gauge of hiring momentum in real time.

ADP breaks out job gains by company size and industry, which helps investors track where labor strength or weakness is showing up. I watch this because it can signal turning points in employment trends before they show up in broader economic data.

To put the numbers in context, I compared monthly hiring from 2011 to 2024 against what we’re seeing in 2025…

So far, not a single month this year has exceeded the 15-year average. October didn’t break the trend. According to ADP, just 42,000 people found gainful employment, well below the typical rate of 232,000. And while that’s an improvement over the contractions in August and September, it’s still weak. That should tell our central bank it needs to ease more to support hiring.

Challenger, Gray & Christmas Job Cuts

The monthly job cut report from Challenger, Gray & Christmas tracks announced layoffs by U.S. companies. It’s not a survey or estimate — it’s a count of actual job cuts that firms publicly disclose, often before they show up in government data. The report breaks down cuts by industry and reason, which helps spot where pressure is building. I watch it because it can flag turning points in business confidence and labor demand.

According to the firm’s data, more than 153,000 job cuts were announced in October. That pushed the year-to-date total to just under 1.1 million…

As you can see, job cut announcements this year are running well ahead of the 2016-2024 average. Challenger said October saw the highest total for that month in over two decades. Layoffs jumped across tech, retail, and logistics, with companies citing cost pressures, slower demand, and AI-driven restructuring. The year-to-date total is the highest since the pandemic-driven losses in 2020.

Challenger’s hiring plan data told a similar story…

U.S. employers announced plans to hire just over 488,000 workers through October, the lowest year-to-date total since 2011. Seasonal hiring was especially weak, with slightly more than 372,500 positions added ahead of the holidays. That’s the smallest October figure since tracking began in 2012. Companies cited cost pressures, automation, and softening demand as reasons for pulling back.

This report offers a clear signal that corporate belt-tightening is accelerating. Like the ADP figures, it adds weight to the case for more Fed easing to support hiring.

Chicago Fed Unemployment Rate

The Chicago Fed’s monthly labor market indicators offer a real-time look at job trends using a mix of private data and government surveys. They track three key metrics: a forecast of the unemployment rate, a hiring rate for unemployed workers, and a separations rate that includes layoffs and quits. These indicators help investors see where the labor market is heading before official numbers come out. I monitor them to remain at the forefront of trends.

Since we’ve already looked at hiring and separation numbers, I want to focus on the unemployment rate forecast, a key metric the Fed considers when setting rates.

According to the Chicago Fed, the metric rose to 4.4% in October (rounded up from 4.36%). For comparison, the last reading in August was 4.3%. And since bottoming out at 3.4% in 2023, it’s been climbing steadily.

Typically, an unemployment rate between 4% and 5% is considered full employment. That range reflects a healthy labor market where most people who want to work can find jobs, while still allowing for normal job turnover and transitions. But as this number drifts further from the 3.8% average since early 2022 and closer to 5%, it should support the case for more easing.

Bringing It All Together

Like I said at the start of the week, national employment trends are still weak. The data confirms it. Hiring continues to fall short of historical norms, layoff plans are running hot, and the unemployment rate is on the rise.

The main tool our central bank has to fix the problem is easier monetary policy. Lower rates reduce borrowing costs, free up cash for households and businesses, increase spending, support hiring, and underpin economic growth. All of that would help sustain a long-term rally in the S&P 500.

Five Stories Moving the Market:

Japan's advocates of expansionary fiscal policy are making a comeback in economic decision-making with some hand-picked by Prime Minister Sanae Takaichi to fill posts in key government panels – Reuters. (Why you should care – increased spending by the Japanese government and easier policy by the Bank of Japan are likely to weigh on the yen and boost the outlook for the country’s stock market)

Senate Majority Leader John Thune (R-SD) told Senate Republicans they should expect to vote on a new proposal Friday aiming to end the government shutdown, in an attempt to build momentum toward a deal; Democrats, however, indicated they weren’t sold on the emerging package – WSJ. (Why you should care – a new proposal is likely a first step in moving toward a broader deal to reopen the government)

China’s exports unexpectedly contracted in October during a period of renewed tensions with the U.S., dealing a blow to an economy already at risk of a slowdown in the final months of the year – Bloomberg. (Why you should care – China is facing growing pushback from other countries, accusing Beijing of dumping goods)

Federal Reserve Bank of St. Louis President Alberto Musalem said the U.S. central bank has been right to cut interest rates to help the job market; Musalem said policy is moving closer to neutral but he still sees downside risks to the labor market – Reuters. (Why you should care – Musalem expects inflation growth to move back toward the Fed’s 2% target in the second half of 2026)

Cleveland Fed President Beth Hammack suggested she is skeptical the Fed can afford to opt for further interest-rate cuts, given the persistence of inflation and the monetary easing from the rate cuts the Fed has already completed – WSJ. (Why you should care – Hammack, a noted hawk, won’t be a voter until next year and will likely be in the minority from a policy perspective)

Economic Calendar:

Earnings – BEN, CEG, DUK

China – Exports, Imports for October

Japan – Household Spending for September

Germany – Exports, Imports for September (2 a.m.)

France – Exports, Imports for September (2:45 a.m.)

Fed’s Williams (New York, Voter) Speaks (3 a.m.)

U.K. – Average Mortgage Rate for October (5:00 a.m.)

Fed’s Jefferson (Vice Chair, Voter) Speaks (7:00 a.m.)

ECB’s Nagel (Germany) Speaks (7:00 a.m.)

BOE’s Pill (Chief Economist) Speaks (7:15 a.m.)

Canada – Unemployment Rate for October (8:30 a.m.)

U.S. – University of Michigan Consumer Sentiment (Preliminary) for November (10:00 a.m.)

U.S. - Baker Hughes Rig Count (1 p.m.)

U.S. – Consumer Credit for September (3:00 p.m.)

U.S. - CFTC’s Commitment of Traders Report (3:30 p.m.)

Fed Releases Balance Sheet Updates on Commercial Banks (4:15 p.m.)