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Claims At 57-Year Lows, Sentiment Near Record Lows, Hires Rate Stuck At 3.4%: The Labor Market's Trilemma Gets A Hawkish Twist

Tyler Durden's Photo
by Tyler Durden
Authored...

Three datasets, three different economies.

In one, layoffs are scarcer than at any point since Nixon's first year in office. In another, consumers are only a few points above the most miserable reading in the 70-plus year history of the University of Michigan survey. And in the third, hiring has been so sluggish for so long that a single blowout payrolls print barely dents the 12-month average.

Last week we called this "Low Hire, Low Fire, Low Inspire", and then the October jobs report promptly blew away every estimate, sentiment unexpectedly jumped, and CPI ran hot (again). So did the trilemma resolve itself? Not really. If anything, it just got a lot more expensive, because Goldman now thinks the Fed will hike its way through it.

Low Fire: Fewer Claims Than The Best Week Of 2019

Start with the part that is unambiguously strong. Initial jobless claims remain near the lowest since 1969, though ticked up modestly last week to 200k.

The four-week average dropped to 195,250, also the lowest since 1969 and down from 225,500 a year ago. For perspective, claims averaged roughly 218K in 2019, and the best single week that year was 196K. In other words, over the past month the US has averaged fewer new claims than in the single best week of the pre-Covid "golden age".

Continuing claims tell the same story: 1.697 million, about 250K fewer than a year ago, with the share of covered workers collecting benefits down from 1.3% to 1.1%.

JOLTS confirms it from the employer side: the layoffs and discharges rate fell to 1.0% in September, with 1.6 million let go. American employers simply refuse to fire anyone in any meaningful numbers, for now.

Low Hire: The Payrolls Beat That Didn't Fix The Hiring Rate

Then came last Friday's curveball. Nonfarm payrolls rose 165K in October against a 70K median forecast, a 5-sigma beat, with August revised up to 186K and September to 60K. Goldman's economists were caught as flat-footed as everyone else (they were at 75K), and their note (available to pro subs) did the arithmetic:

"After upward revisions to the two prior months, the three-month average of payroll growth stands at 137k (vs. 51k prior to today's report), and our estimate of the underlying pace of job growth based on the payroll and household surveys stands at 124k (vs. 51k prior to today's report)."

So the hiring problem is solved? Not so fast. Even Goldman flagged that October's bounce fits a familiar seasonal pattern: stronger October payrolls tend to follow a weak September whenever Labor Day falls late in the month, as it did this year. Strip out the calendar quirk and the 12-month average gain was just 48K before October. And 2025 was a near-zero year.

The flow data are even less flattering. September JOLTS showed openings jumping to 7.52 million, yet the hires rate is still stuck at 3.4%, with about 5.4 million hires. That is the definition of a frozen market: companies hold onto everyone they have, post vacancies, and then mostly don't fill them. And ADP's weekly series has private payrolls rising an average of 19,750 a week in the four weeks to Oct 24, which works out to roughly 80K a month (napkin math). That's decent, but hardly a hiring boom.

Look under the hood of the October report and the picture gets murkier still. The U6 underemployment rate jumped 0.3pp to 7.9%, which Goldman attributes largely to a 171K increase in marginally attached workers. Average hourly earnings grew 3.12% y/y, which is below the 3.7% headline CPI print for September. Real wages are going backwards. Remember that when we get to the sentiment numbers.

Low Inspire: 57% Say Their Living Standards Are Eroding

Which brings us to the third leg. The preliminary November UMich index jumped 3 points to 51.0, beating the 48.0 consensus (and Goldman's 49.5).

Good news? Only relative to the floor. The index plunged to an all-time low of 44.8 in May as the Hormuz shock sent gasoline soaring, and as we noted last Friday, the November bounce was driven by Independents. A reading of 51 is still deep in territory that historically comes with recessions, not with 189K claims. Goldman's chart (chart source GS, UMich) shows just how far below the 1990, 2001 and 2008 troughs consumers are now:

The most telling line in the report was not the headline at all. As Goldman flagged, quoting the survey's director:

"About 57% spontaneously mentioned that their living standards have been eroded by high prices, the highest seen since May and up from 46% in February, just prior to the Iran conflict."

That's the trilemma in a single sentence. People have jobs. They just can't afford anything. Year-ahead inflation expectations did ease to 4.3% from 4.7%, but that is still well above where they were before the energy shock, and above the pace of wage growth:

One more caveat: interviews for the preliminary survey ran from October 20 to November 2, which means they closed before the election and before last Thursday's AI rout. So the "bounce" may turn out to be the high-water mark when the final November number lands next Friday.

Squaring The Circle: A Frozen Labor Market In A Stagflationary Fog

So how can all three be true at once? The simplest reconciliation goes like this:

  • Low churn keeps claims down. Firms that struggled to hire in 2022-2023 are hoarding labor, and with a 3.4% hires rate, workers aren't quitting to chase better jobs either.
  • Low hiring keeps the jobless and new entrants stuck. That shows up in U6 and marginally attached workers, not in claims, since you can't file for benefits from a job you never got.
  • Prices, not pink slips, drive the mood. Households with jobs are watching wages lose to inflation, and an energy shock is the most visible kind of inflation there is.

Translation: this is a cost-of-living recession for households sitting on top of a no-firing labor market. Bloomberg Economics called it the "New Labor-Market Norm" in a note this week, and its subtitle is the important part: "New Challenge for the Fed."

Enter The Hawks: Goldman Adds A Third Hike

Because here's the twist. In the old playbook, weak sentiment plus mediocre hiring meant a dovish Fed. In the Warsh era, with the funds rate already lifted to 3.75%-4.00% in September, it means the opposite. After Tuesday's CPI, Goldman's David Mericle went further (also available to pro subs):

"The October CPI report this morning surprised meaningfully to the upside across several categories and marked a third month of worse inflation news. We continue to expect a second 25bp rate hike in December and are adding a third 25bp hike to our forecast in March 2027."

Goldman also pushed back the start of rate cuts by a quarter, to December 2027. And the bank thinks most FOMC participants will pencil a third hike into December's dot plot. With 189K claims and a 165K payrolls print, the Fed has all the cover it needs to tighten. That is exactly what the 57% complaining about living standards don't need: higher mortgage, auto and credit-card rates on top of higher prices.

Regular readers will recall that we flagged this setup when September CPI sent rate-hike odds "flashing red" in mid-October. A month later, the Fed is hiking into a labor market where nobody gets hired and a consumer who already feels poorer. Diversification at its finest.

The Floor Holds... Until It Doesn't

Goldman ends on a reassuring note, confident that "inflation will be meaningfully lower by the end of 2027 as the effects of tariffs, the energy shock, and AI price pressures diminish." Maybe. But end-2027 is a long way off for a household already spending more than it earns in real terms.

Our take: the bulls will point to claims and say recession is off the table, and they'll be right, for now. But a low-fire market is only reassuring until it isn't. Claims are a coincident indicator, and they tend to look their best right before they turn. Pair a 3.4% hires rate with three Fed hikes and a consumer this gloomy, and the next shoe to drop is far more likely to be layoffs than a hiring boom. The trilemma probably won't resolve with sentiment catching up to claims. More likely, claims eventually catch down to sentiment.

Next up: November UMich final on Friday, Nov 20, then the November payrolls report on Dec 4, just days before the Fed meets on Dec 8-9.

Much more in the full Goldman "USA: Payroll Growth Well Above Expectations..." and "US Daily: Adding a Third Hike in March" notes, both available to pro subs.

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