While Wall Street remains fixated on the selloff in software stocks—sparked by fears that artificial intelligence is commoditizing complex code and reducing the need for outsourced SaaS—another warning sign is flashing in the labor market.

U.S. employers slashed over 100,000 jobs in January — the worst start to a year since 2009.

According to a report released Thursday by Challenger, Gray & Christmas, 108,435 job cuts were announced last month, marking a 205% increase from December and a 118% increase from January 2025.

The only steeper January came during the depths of the Great Recession, when 241,749 cuts were reported in 2009.

The current wave suggests companies ended 2025 with worsening expectations for the economic outlook in 2026.

"It means most of these plans were set at the end of 2025, signaling employers are less-than-optimistic about the outlook for 2026," said Andy Challenger, the firm's chief revenue officer.

While layoffs ballooned, hiring plans collapsed to just 5,306 positions, the lowest January level ever recorded by Challenger. The figure is down 13% from a year ago and 49% from December's total.

AI Isn't Just Disrupting Code – It's Taking Jobs

In January alone, 7,624 job cuts were directly attributed to AI, representing 7% of all layoffs. Since the metric began in 2023, AI has been cited in nearly 80,000 job cuts.

"It's difficult to say how big an impact AI is having on layoffs specifically," said Challenger. "The market appears to be rewarding companies that mention it."

Dow Inc. (NYSE:DOW) triggered 4,701 layoffs in January, the worst month for chemicals since 2016, explicitly citing AI-driven automation in its operations.

In tech, Amazon also led with 16,000 job reductions as it reorganized its management layers. That made up the bulk of the 22,291 technology job cuts recorded in the month.

"CEO Andy Jassy, like many CEOs recently, has said AI will cost jobs in the coming years, but this cut appears to be due more to over hiring and reducing layers than to the new technology," said Challenger.

Healthcare and health product firms announced 17,107 job cuts in January—the most since April 2020. Hospital systems are under pressure from rising labor costs, inflation and lower Medicaid and Medicare reimbursements. This forces not only layoffs but also pay and benefit cuts.

Companies Brace For A Leaner 2026

AI continues to emerge as a supporting driver of job reductions, but broader macro issues are forcing corporate retrenchment.

Beyond AI, companies most frequently cited contract losses (30,784 cuts), market and economic conditions (28,392) and restructuring efforts (20,044) as reasons for workforce reductions.

Store and department closures accounted for another 12,738 layoffs.

The surge in layoffs and the collapse in hiring plans suggest corporate America is shifting into defense mode.

Employers are entering 2026 with caution, trimming costs, flattening teams and bracing for slower growth.

As AI, restructuring and economic uncertainty converge, the labor market is signaling that the next phase may be about resilience—not expansion.

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