U.S. Challenger Job Cuts Spike 53.4% in September:
Implications for Real Estate and the Economy

October 03, 2024 : The latest Challenger Job Cuts report for September 2024 revealed a significant increase in job cuts, with employers announcing 72,821 layoffs. This marked a 53.4% year-over-year rise, a sharp contrast to the 1.0% recorded in August. This spike in job cuts reflects growing economic challenges that may impact various industries, including the real estate sector.

The Challenger Job Cuts report measures the number of layoffs announced by employers and provides key insight into the health of the U.S. labor market. A 53.4% increase represents a substantial jump, suggesting potential ripple effects across different sectors of the economy. For real estate, job cuts can lead to lower consumer confidence, reduced spending, and a potential slowdown in home buying as individuals face job uncertainty. Layoffs often reduce the number of qualified buyers, as unemployment or financial instability make it harder for people to secure loans or make large purchases like homes.

Adding context to this data, Andrew Challenger, Senior Vice President of Challenger, Gray & Christmas, Inc., noted, “We’re at an inflection point now, where the labor market could stall or tighten. It will take a few months for the drop in interest rates to impact employer costs, as well as consumer savings accounts. Consumer spending is projected to increase, which may lead to more demand for workers in consumer-facing sectors. Layoff announcements have risen over last year, and job openings are flat. Seasonal employers seem optimistic about the holiday shopping season. That said, many of those who found themselves laid off this year from high-wage, high-skill roles, will not likely fill seasonal positions.” This perspective highlights both the short-term challenges and longer-term opportunities in the labor market.

In addition to the Challenger report, the labor market data further complicates the economic outlook. The latest figures on Initial Jobless Claims came in at 225,000 for the week ending October 3, 2024, slightly higher than the forecasted 222,000 and an increase from the previous week’s 219,000. While the rise is modest, it indicates a slight uptick in unemployment claims. However, the four-week moving average, which smooths out volatility, stood at 224,250, slightly lower than the forecast of 225,000. This signals that, while layoffs are increasing, the labor market has remained relatively resilient.

Moreover, Continuing Jobless Claims, which reflect the number of individuals still receiving unemployment benefits, were recorded at 1.826 million. This was lower than the expected 1.827 million, indicating that despite the rising job cuts, many people are finding employment or transitioning out of unemployment benefits.

Beyond the labor market data, the S&P Global Composite and Services PMI data for September paint a more cautious picture of the overall economy. The Composite PMI came in at 54.0, slightly below the previous month’s 54.6, while the Services PMI registered 55.2, down from 55.7 in August. These numbers indicate continued growth in the services sector but at a slower pace than before. A slowing services sector, combined with rising job cuts, could signal weaker economic conditions ahead, which may affect the housing market.

For real estate professionals, the impact of rising job cuts on the housing market can be substantial. When job losses increase, fewer individuals may qualify for home loans, and buyer demand could weaken as economic uncertainty weighs on consumer confidence. Additionally, mortgage rates have been trending upwards. The 10-year Treasury yield is now at 3.817%, the highest level since early September, and this upward trend is likely to drive mortgage rates higher as we approach a repricing of mortgage-backed securities. Higher mortgage rates reduce affordability for potential homebuyers and could further slow the housing market, especially in regions where prices have remained elevated.

The year-over-year Challenger Job Cuts data also offers insight into the broader trend of layoffs. Over the past 12 months, job cuts have fluctuated dramatically. For example, in July 2024, layoffs rose by 19.8%, while June saw a reduction of 20.3%. Earlier in the year, in January, job cuts were down by 40.8%, showing the volatility in employment trends. The September data is one of the highest year-over-year increases in 2024, underscoring the current pressures in the labor market.

For the real estate market, these economic shifts emphasize the importance of closely monitoring employment trends. Rising layoffs and higher mortgage rates could create a perfect storm, reducing demand for housing and slowing the overall market. Buyers may face higher barriers to homeownership, while sellers could see longer listing times and pressure to lower prices. Real estate agents and brokers must be prepared to guide their clients through these uncertain times by staying informed about labor market data and how it may influence the housing market.

As we look ahead, keeping a close eye on upcoming employment reports and mortgage rate trends will be crucial for understanding the direction of the U.S. real estate market. The Challenger Job Cuts report is just one of several indicators signaling potential shifts in economic conditions, and its impact on housing cannot be ignored.​