Tech layoffs may not be a bad sign for the U.S. economy as a whole

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The latest wave of layoffs in the tech sector may have American workers wondering if their jobs are on the way.

There is little evidence so far that thousands of layoffs at big tech firms — Meta, Amazon and Twitter — will bleed into the U.S. economy, according to labor economists.

Federal data point to continued strength in the labor market, characterized by strong demand for workers, ample job openings and layoff rates, which overall continue to approach record lows.

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The November jobs report released Friday by the U.S. Labor Department was the latest evidence of a robust job market that continues to defy gravity. Employers added 263,000 jobs — more than expected — and the national unemployment rate held steady at 3.7%, just above a half-century low.

In general, the labor market appears to be “cruising” through 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 historic lows for almost two years

Economists say the monthly federal Jobs and Labor Turnover Survey is perhaps the best indicator of layoff trends on a national basis. The layoff rate — measured as a share of total employment — had never fallen below 1% or below before the pandemic.

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

One caveat: data is delayed. The last issue on Wednesday was for October. Many tech layoffs were announced in November, which means they could appear in the next JOLTS report, said Daniel Zhao, chief economist at Glassdoor.

The total number of American workers being laid off now averages about 1.4 million per month. By comparison, layoffs averaged 1.8 million per month between 2017 and 2019, Bunker said.

In other words: To return to 2017-2019 levels, current layoffs would need to rise steadily by 400,000 per month — and even that was considered a period of labor market strengthening, Bunker said.

Elsewhere, job openings – a barometer of employers’ demand for workers – remain 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 number did not exceed 8 million. Therefore, businesses are still trying to hire workers at near-historic levels.

In addition, the ratio of jobs to the unemployed is about 1.7, meaning that there are almost twice as many jobs as people looking for work.

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

Tech firms are cutting bloated workforces during the pandemic

Overall, U.S.-based firms announced 76,835 job cuts in November, led by the technology sector, according to a report published Thursday by Challenger, Gray & Christmas. This is more than double compared to 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, according to the report. The company began tracking data in 1993.

The layoffs among big tech firms are, in many cases, a partial offset to overzealous hiring during the pandemic; This is not necessarily a harbinger of a broader economic disruption that will lead to job cuts in other sectors, according to labor economists.

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

“At the onset of Covid, the world quickly went online and the growth of e-commerce led to huge revenue growth,” Zuckerberg wrote. “A lot of people predicted that this would be a permanent acceleration that would continue after the pandemic was over. And I did, so I decided to increase our investments significantly. Unfortunately, it didn’t turn out the way I expected.”

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

The US Federal Reserve is increasing borrowing costs to cool the labor market and the overall economy in an effort to tame persistently high inflation. It remains to be seen how much the central bank will brake the economy.

“The job market … remains surprisingly strong”

Zhao said that while the US economy as a whole is not experiencing massive layoffs, tech companies are responding in part to a “real economic trend.”

“It is only clear what the first domino is [to fall] looking back,” Zhao said. “I don’t think we can rule out that these layoffs weren’t the first domino.”

Still, Zhao said the job market remains strong and is consistently surprised for an uptick this year, adding that it won’t necessarily be a broader contagion.

“I think that’s been the theme for 2022 — we expect the job market to slow more dramatically, and it remains surprisingly strong,” he said.

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