Mass layoff headlines keep piling up, and workers are understandably spooked. The labor market has been tight for the majority of the pandemic, with millions more job openings than people available to fill them, and recruiters going to the extreme to court high-earning workers in tech, finance and real estate.
So with tens of thousands of workers suddenly losing their jobs at the likes of Google, Amazon, IBM, Salesforce and more, it's understandable the shocks are reverberating across the labor market.
"Loud layoffs" in tech have a disproportionate chilling effect, says ZipRecruiter chief economist Julia Pollak, because they're happening at household name-companies that just experienced rapid growth. Further, it's a "bellwether industry that shapes our moods, and a slowdown there is causing job-seekers more broadly to worry jobs are becoming less available."
White-collar layoffs are a ripple, not a wave
But while these job losses are sudden and no doubt disruptive to the people impacted, they're not the wave of job cuts that would signal a recession, economists say.
"We're not in a recession yet" and may not realize we're in one until it's over, says ADP chief economist Nela Richardson.
The national unemployment rate remains low at 3.5% and less than 1% of the workforce are being laid off every month, near record lows. Gross domestic product increased more than expected last month. And unemployment claims slid by 6,000 in the last week down to 186,000 people filing for jobless benefits. Heading into the pandemic, that number hovered around 200,000 people seeking aid every week.
The recent spate of layoffs are "painful and disconcerting," Richardson says, but are "ripples, not yet waves."
Tech companies may be "pruning" their headcount, Richardson adds, but they're still investing in building future technology, and by extension, workforces. Take Microsoft, for example, which this month announced it was laying off 10,000 workers and days later unveiled a multi-billion dollar investment in ChatGPT-maker OpenAI.
"Tech is on edge," Richardson says, but we may not see the real impact on the overall labor market for several months, if laid-off workers run out of severance and begin to file for jobless benefits en masse.
Meanwhile, ADP's small business clients say their biggest challenge continues to be finding qualified workers, and they don't think it'll get much better in 2023. These employers "have a white-knuckle grip on their workers" who know they're in-demand and can ask for better working conditions, Richardson says.
White-collar employers may be repeating the mistakes of businesses across leisure, hospitality and service jobs, which shed workers during the pandemic downturn only to have a talent shortage on its rebound. "We've entered a new era of the labor market," Richardson says, "where just-in-time supply of goods or workers has been disrupted, and workers may not be there when you need them."
Layoffs in manufacturing could signal a recession
A bigger indicator of a looming recession is a decrease in hiring, and increase in layoffs, of temporary workers, particularly in manufacturing, Richardson says. That could be a sign that layoffs concentrated in white-collar jobs could be filtering into blue-collar work.
In late 2022, an index measuring factory activity showed a contraction for the first time since 2020, and "manufacturing is typically where recessions start," Richardson says.
Employers cut 110,800 temp workers in the last five months of 2022, reports The Wall Street Journal, including 35,000 in December, the largest monthly drop since early 2021.
Even if the U.S. formally enters a recession, "it'll be the weirdest one ever, starting off with a 3.5% unemployment rate and where consumers, by and large, are in good shape and incomes have increased. It'll be a different kind of recession than we're aware of," which are "primarily driven by inflation and higher interest rates," Richardson says.
What's more likely to happen is that the U.S. will enter a period of stagflation, or an "anemic economy" with persistent inflation. Whereas a recession means the economy shrinks, hits a low point and then rebounds, stagflation means the Fed raises rates and then holds them there, and inflation moderates but doesn't reach their goal of 2%.
"With stagflation, you're not seeing the light at the end of the tunnel, and as a result you could have sluggish growth," Richardson says. "We're sitting in the messy middle."
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