Artificial Intelligence Is Not the Only Culprit for the Cooling of the American Labor Market

It has never been more difficult to forecast economic trends. Government operations have been blocked for too long, government agencies have not been functioning, nor have the agencies that manage statistics, leading to a lack of precise and up-to-date data on the state of the economy. Therefore, in our forecasts, we must rely on the broader picture and carefully listen for signals from all markets. However, these signals increasingly indicate that the risk of a weakening labor market is currently greater than the risk of renewed inflation. These are the words of Lisa Cook, a member of the Board of Governors of the U.S. Federal Reserve (FED), in a speech delivered at the Brookings Institution in Washington. Her appearance followed shortly after the U.S. central bank lowered key interest rates for the second consecutive time by 0.25 percentage points at the end of October, the first time in September, and then again in October.

Signs of Fatigue

Cook emphasized that the American labor market, once a key symbol of the resilience of the national economy, is increasingly showing signs of fatigue. This stance contrasts with the dominant view within the FED, as well as that of its chairman Jerome H. Powell. He continues, along with most officials, to assert that the labor market is ‘stable’ and the economy is ‘more resilient than expected,’ despite inflation still exceeding the targeted level of two percent and growing concerns that the slowdown could be deeper than official estimates suggest.

Cook clearly does not share this opinion; she sees signs of cooling in the labor market, reduced demand for workers, and a decline in the number of job openings. According to her, the economy is not as strong as it was a year or two ago, and therefore the FED should be cautious with high interest rates as this could further hinder employment.

–​ The FED must simultaneously pay attention to price stability and full employment – Cook believes.

The labor market in the U.S. is definitely not the same as in previous years; it is not creating thousands of new jobs each month, and once a job is lost, it is not easy to find another. Those who face this problem know it best… There may not be mass layoffs, but that is little consolation for the IT industry, where thousands of layoffs are being issued. The mindset of ‘let’s hire as many people as possible,’ which has prevailed in that sector for years, has shifted to ‘we must be cautious and selective in hiring,’ American media explain.

Belt Tightening

That there are reasons for caution is also shown by a report from Challenger, Gray & Christmas, which tracks trends in the U.S. labor market. Their latest report states that there have not been this many announcements of job cuts in the U.S. in the last 20 years. They report that in October alone, 153,074 job cuts were announced, an increase of 175 percent compared to 55,597 job cuts announced in October 2024. Compared to September, the number of announced job cuts is up by 183 percent! In the first 10 months of 2025, over a million job cuts have been announced in the U.S., a 65 percent increase compared to 664,839 announced in the first ten months of last year. This is a 44 percent increase compared to 761,358 layoffs announced for the entire year of 2024. It is unclear which number is worse than the other.

– The pace of layoffs in October was much faster than the average for that month. Layoffs are occurring due to the increasing introduction of artificial intelligence, but also due to reduced consumer and business spending, as well as rising costs, which are prompting belt-tightening and hiring freezes. Those who are laid off now will find it harder to get employed, which could further negatively impact the labor market – said Andy Challenger, one of the senior directors and researchers at Challenger, Gray & Christmas.

According to the report, the IT sector in the U.S. continues to lead in layoffs in the private sector as companies restructure due to the integration of artificial intelligence, slower demand, and efficiency pressures. The trade sector follows, which is among the hardest hit this year. The services sector, which includes cleaning companies and other services, has also lost several thousand jobs, as have logistics and warehousing. There are also fewer jobs in non-profit organizations and in the media industry. There is hardly any industry that will not be reducing the number of jobs.

Tens of Thousands Are Leaving

Challenger’s report is not the only one that does not bode well. The National Association for Business Economics also predicted last month that the unemployment rate in the country, which was 4.3 percent in August, will rise to 4.5 percent by 2026. That it is definitely not a false alarm is evidenced by examples. Just at the end of October, Amazon ‘thanked’ 14,000 people for their cooperation. Microsoft laid off about 15,000 employees last summer, after which the CEO advised those laid off to seek help from AI chatbots to ‘reduce the emotional and cognitive burden that comes with job loss.’ Intel announced plans to cut about 24,000 jobs in 2025, which is about 22 percent of its workforce, as part of a restructuring due to the global decline in demand for personal computers and fierce competition in the chip segment.

Layoffs are occurring in the United States, Germany, Costa Rica, and Poland, which only means that the wave of layoffs will begin to shift from Silicon Valley across the rest of the U.S. to other parts of the world. And while the leaders of these companies are optimistic and believe that productivity driven by artificial intelligence will create new opportunities, analysts still see plenty of reasons for concern. And when the American labor market cools, Europe usually feels it with a slight time lag.