Goldman sees big layoff announcements as 'a ripple, not a wave'

Published Fri, Feb 10 202311:30 AM EST

The rash of large layoffs at tech companies are not representative of a major breach in the labor market, according to Goldman Sachs. Recent headlines around companies such as Yahoo, Google, Microsoft and others have jangled nerves as worries linger over whether the U.S. is heading into a recession. However, Goldman economists this week say they see a solid labor market and, in fact, less of a chance that the economy will contract over the next year. "We expect the recent round of corporate layoffs to be a ripple, not a wave," Goldman said in a recent client note. That position comes largely because most of the companies involved share the same three qualities: They're primarily tech-oriented, they are laying off some employees after collectively increasing headcount by 41% during the pandemic, and their stock prices have come off the boil, down 43% to more realistic valuations. "This suggests that these companies are not representative of the broader economy and that the layoffs were not mainly in response to early signs of weak demand that are likely to appear elsewhere soon," the firm added. The labor market evaluations come in the wake of a stunning January jobs report : Growth of 517,000 in nonfarm payrolls and an unemployment rate of 3.4%, tied for the lowest since 1953. On top of that, weekly jobless claims have held low, running below 200,000 for the past four weeks, despite the big headlines about layoffs. Worker mobility also remains solid, with quits holding at 2.7% of the workforce in December and the hiring rate actually increasing to 4% for the month, according to Labor Market data. That has come despite more than 102,000 layoffs announced just in January, the highest for the month since 2009 , according to outplacement firm Challenger, Gray & Christmas. "It is also important to bear in mind that not every layoff translates into a lasting increase in unemployment because most workers find new jobs," Goldman economist Ronnie Walker wrote. "In recent months, the job finding rate among unemployed individuals has been high by historical standards." While questions have persisted over whether the layoffs portend a weaker jobs market and a potential trouble spot for the economy, Walker said, "The past week of labor market data answered that question with a resounding 'no.'" Already one of the more optimistic forecasters on Wall Street, Goldman this week lowered its recession probability to 25%, from 35%, well below expectations elsewhere. The New York Federal Reserve's recession probability indicator , which compares yield spreads between the 10-year and 3-month Treasurys, moved up to 57.1% as of the end of January, the highest level since 1982.