Layoffs may not be a bad sign for the U.S. economy overall | Bot To News

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A recent wave of layoffs in the tech sector could have American workers wondering if their jobs are next on the line.

So far, there is little evidence that the thousands of layoffs at big tech companies — Meta, Amazon and Twitter, to name a few — are bleeding into the U.S. economy at large, according to labor economists.

Federal data point to continued strength in the labor market, characterized by strong demand for workers, plenty of job openings and layoff rates that collectively continue to hover near record lows.

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The US Labor Department’s November employment report on Friday was the latest evidence of a resilient labor market that continues to defy gravity. Employers added 263,000 jobs – well above expectations – and the national unemployment rate remained unchanged at 3.7%, just above a half-century low.

Overall, the job market appears to be “cruising” into 2023, said Nick Bunker, head of economic research at Indeed Hiring Lab.

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

Layoffs at lowest level in nearly two years

The federal Job Openings and Labor Turnover Survey, released monthly, may be the best measure of layoff trends nationally, economists said. The layoff rate — which measures layoffs as a share of total employment — never fell to 1% or less before the pandemic period.

That precedent was broken last year. According to JOLTS, the layoff rate has been 1% or less every month since March 2021.

One caveat: the data lags. The last post on Wednesday was for October. A number of tech layoffs were announced in November, meaning they may appear in the next JOLTS report, said Daniel Zhao, lead economist at Glassdoor.

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

Put another way: Current layoffs would have to jump by 400,000 a month permanently to return to 2017-2019 levels — and even that is a period of labor market strength, Bunker said.

Elsewhere, job vacancies – a barometer of employer demand for workers – are still well above their pre-pandemic trend, despite falling from peak levels earlier this year.

About 10.3 million jobs were created in October. Before the pandemic, this figure did not exceed 8 million. So companies are still looking to hire workers at near-historic levels.

In addition, the ratio of job vacancies to unemployed individuals is about 1.7, which means that there are almost twice as many available jobs as there are people looking for work.

Jobless claims are another measure, although less reliable since they are not a direct measure of layoffs. They are counted weekly, so they offer more real-time updates. Claims for unemployment benefits have remained relatively flat and close to the pre-pandemic trend line.

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US-based companies announced 76,835 job cuts in November, led by the technology sector, according to a report released Thursday by Challenger, Gray & Christmas. This was more than double the previous month and five times more than November 2021.

However, overall job cuts in 2022 are the second lowest on record, trailing only last year, the report said. The company started tracking data in 1993.

Layoffs among large tech companies are in many cases partly the result of over-hiring during the pandemic; this is not necessarily a harbinger of broader economic problems that will lead to job cuts in other sectors, labor economists say.

Meta CEO Mark Zuckerberg hinted at this dynamic in a recent letter to employees, explaining the job cuts affecting more than 11,000 workers.

“At the start of Covid, the world quickly moved online and the rise of e-commerce led to tremendous revenue growth,” Zuckerberg wrote. “Many people predicted that this would be a sustained acceleration that would continue after the pandemic ended. I did too, so I decided to significantly increase our investments. Unfortunately, it didn’t work out the way I expected.”

Amazon CEO Andy Jassy also said the company has been “hiring at a rapid pace over the last few years.” However, Jassy said the economy “remains in a difficult position.”

The U.S. central bank is raising borrowing costs to cool the labor market and the overall economy and tame persistently high inflation. To what extent the central bank will slow down the economy remains to be seen.

“The labor market … remains surprisingly strong”

Although the U.S. economy is not generally experiencing mass layoffs, tech companies are responding in part to a “real economic trend,” Zhao said.

“It’s only obvious what the first domino is [to fall] in retrospect,” Zhao said. “I don’t think we can rule out that these layoffs are not the first dominoes.”

However, Zhao said, the labor market remains strong and has consistently surprised to the upside this year, suggesting there is not necessarily a broader contagion.

“I feel like that’s been the theme of 2022 — we keep expecting the labor market to slow dramatically, and it remains surprisingly strong,” he said.

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