Tech layoffs may not bode ill for the U.S. economy as a whole

Tech layoffs may not bode ill for the U.S. economy as a whole

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A recent wave of tech layoffs could have American workers wondering if their job is next on the chopping block.

So far, there’s little evidence that the thousands of cuts to big tech companies — Meta, Amazon and Twitter, to name a few — are bleeding into the U.S. economy as a whole, according to the labor economists.

Federal data indicates continued strength in the labor market, characterized by strong demand for workers, ample job openings and layoff rates that, overall, continue to be near record lows.

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The November jobs report, released by the US Department of Labor on Friday, was the latest evidence of a resilient job market that continues to defy gravity. Employers added 263,000 jobs – well above expectations – and the national unemployment rate held steady at 3.7%, just slightly above a half-century low.

All in all, the job market appears to be “navigating” toward 2023, said Nick Bunker, head of economic research at the Indeed Hiring Lab.

“I think what’s happening in the tech sector isn’t really representative of what we’re seeing in the overall economy right now,” Bunker said.

Layoffs at historic lows for nearly two years

The federal job postings and labor turnover survey, released monthly, is perhaps the best indicator of layoff trends nationwide, economists said. The layoff rate – which measures layoffs as a proportion of total employment – ​​had never fallen to 1% or less before the pandemic era.

This precedent was broken last year. The layoff rate has been at or below 1% each month since March 2021, according to data from JOLTS.

One caveat: the data is lagging. The latest release, Wednesday, was for October. Numerous tech layoffs were announced in November, which means they could show up in the next JOLTS report, said Daniel Zhao, chief economist at Glassdoor.

For now, the total number of laid-off American workers is averaging around 1.4 million per month. By comparison, from 2017 to 2019, layoffs averaged about 1.8 million per month, Bunker said.

Simply put: Current layoffs are projected to rise by 400,000 a month on a sustained basis to return to 2017-19 levels — and even that was seen as a period of labor market strength, Bunker said.

Elsewhere, job vacancies – a barometer of employer demand for workers – remain well above their pre-pandemic trend, although they have fallen from record highs earlier this year.

There were about 10.3 million job openings in October. Before the pandemic, this number had not exceeded 8 million. Companies are therefore still looking to hire workers at near historic levels.

Moreover, the ratio of job vacancies to unemployed is around 1.7, which means that the jobs available are almost double those of those looking for work.

Unemployment claims are another gauge, although less reliable because they are not a direct measure of layoffs. They are counted weekly, so offer more real-time update. Jobless claims have remained relatively stable and close to their pre-pandemic trend line.

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Overall, U.S.-based companies announced 76,835 job cuts in November, led by the tech sector, according to a Thursday report from Challenger, Gray & Christmas. That was more than double the number from the previous month and five times that of November 2021.

However, total job cuts in 2022 are the second lowest on record, just behind last year, according to the report. The company started tracking data in 1993.

Layoffs among big tech companies are, in many cases, in part an unwinding of overzealous hiring during the pandemic; it is not necessarily a harbinger of broader economic malaise that will lead to job cuts in other sectors, labor economists have said.

Meta CEO Mark Zuckerberg alluded to this dynamic in a recent letter to employees explaining the layoffs, which affect more than 11,000 workers.

“At the onset of Covid, the world moved rapidly online and the rise of e-commerce led to outsized revenue growth,” Zuckerberg wrote. “Many people predicted that this would be a permanent acceleration that would continue even after the pandemic was over. So I, too, made the decision to increase our investments significantly. Unfortunately, this did not happen. didn’t go as I expected.”

Amazon CEO Andy Jassy also said the company had “hired quickly over the past few years.” However, Jassy said the economy “remains in a difficult situation”.

The US Federal Reserve is raising borrowing costs to cool the labor market and the economy as a whole, in an effort to bring still-high inflation under control. The extent to which the central bank will pump the brakes on the economy remains to be seen.

“The labor market… remains surprisingly strong”

Even though the U.S. economy as a whole isn’t experiencing massive layoffs, tech companies are responding in part to a “genuine economic trend,” Zhao said.

“It is only obvious which is the first domino [to fall] looking back,” Zhao said. “I don’t think we can rule out that these dismissals are not the first domino.

However, Zhao said, the labor market remains strong and has continuously surprised on the upside this year, suggesting there won’t necessarily be a broader contagion.

“I feel like that has been the theme for 2022 – we continue to expect the labor market to slow more dramatically, and it remains surprisingly strong,” he said.

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