Why are so many companies shedding employees if the economy is strong?
As more Americans struggle to keep their heads above water, concerns of a potential recession have begun to surface. A new report reveals that the strong labor market that has helped keep the U.S. economy out of a recession may be weakening.
On Thursday, Challenger, Gray & Christmas released its labor market report, showing that the U.S. lost more than 108,000 jobs in January. The month’s data is the highest total job loss for January since 2009, at the tail end of the Great Recession.
The data release comes as more Americans believe the U.S. is heading into a recession. In a survey from October, 64% of Americans believe the U.S. will enter a recession in 12 months.
This sentiment is not new. Many Americans believed the economy was in recession when they voted in the 2024 presidential election.
Despite the feeling, the U.S. never entered a recession. Economists say a strong labor market was one of the biggest reasons, only behind high consumer spending. This report could raise concerns among economists about a recession.
What did the Challenger report show?
The report stated that layoffs are up 118% from the same period last year and 205% from December 2025. On the inverse side, employers added 5,306 jobs, the lowest since January 2009. It’s important to note that Challenger began tracking labor data in January 2009.
“Generally, we see a high number of job cuts in the first quarter, but this is a high total for January,” said Andy Challenger, the workplace expert and chief revenue officer of the company. “It means most of these plans were set at the end of 2025, signaling employers are less-than-optimistic about the outlook for 2026.”
Transportation had the most cuts in January at 31,243, according to the report. The majority of these cuts came from UPS’s major layoff announcement.
Amazon, one of the tech industry’s largest companies, also announced significant job cuts. The company said it would lay off 16,000 workers, mostly corporate-level employees. The Challenger report said Amazon was the main contributor to the nearly 23,000 job cuts the tech industry saw last month.
The health care industry also saw large cuts, with more than 17,000 workers losing their jobs. That was the largest staff reduction for the industry since April 2020, the report stated.
“Healthcare providers and hospital systems are grappling with inflation and high labor costs,” researchers wrote. “Lower reimbursements from Medicaid and Medicare are also hitting hospital systems. These pressures are leading to job cuts, as well as other cutting measures, such as some pay and benefits.”
Why are layoffs up?
Researchers gave six reasons for the large number of layoffs in January. The biggest reason was contract loss, with 30,784 cuts announced last month.
Market and economic conditions accounted for more than 28,000 cuts, and restructuring was similar, with just over 20,000 cuts in January. Closings accounted for nearly 13,000 planned layoffs, according to the report.
Researchers said artificial intelligence was responsible for 7,624 job cuts in January, or about 7% of the total cuts. In 2025, companies referenced AI for nearly 55,000 layoff plans. Challenger said that AI has accounted for 79,449 job cuts since it began tracking the technology in 2023.
“It’s difficult to say how big an impact AI is having on layoffs specifically,” Challenger said. “We know leaders are talking about AI, many companies want to implement it in operations, and the market appears to be rewarding companies that mention it.”
Tariffs also had a small impact on the report, with just under 300 job cuts in January. Companies referenced tariffs in about 8,000 job cuts last year.
Why hasn’t the government released labor data?
The federal government has yet to release its January job report, citing the recent partial government shutdown. The same thing happened last October, when the government shut down for a record-breaking 43 days, prompting officials to cancel the October jobs report altogether.
While the government didn’t release data, Challenger did. The firm reported a large spike in job cuts then, as it did in its recent report. Job cuts in October 2025 rose 183% from the month before.
CNBC reports that Challenger’s data can sometimes be volatile and not correlate with official statistics. However, their October report matched other independent labor market reports. Filings in January under the Worker Adjustment and Retraining Notification regulations indicate that more than 100 companies have given notice of significant layoffs, which does correlate with Challenger’s most recent report.
There won’t be a long wait for the federal labor data, since the government plans to release it on Feb. 11. Economists predict the nonfarm payrolls report to show the economy added 60,000 jobs in January. They also predict that the unemployment rate will remain at 4.4%.
But on Wednesday, payroll processing firm ADP reported that companies added only 22,000 jobs last month, a figure higher than Challenger’s but well below economists’ predictions.
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Ella Rae Greene, Editor In Chief
