Mass layoff headlines continue to pile up, and workers are understandably panicking. The labor market has been tight for most of the pandemic, with millions more job openings than people available to fill them, and recruiters have been gravitating toward high-paid workers in technology, finance and real estate.
So with the sudden loss of tens of thousands of workers at companies like Google, Amazon, IBM, Salesforce, etc., it’s understandable that shocks reverberate through the labor market.
“Noisy layoffs” in tech have a disproportionately chilling effect because they happen at well-known companies that have recently experienced rapid growth, says Julia Pollock, chief economist at ZipRecruiter. Plus, it’s a “bellwether industry that shapes our moods, and a slowdown there makes job seekers more concerned that jobs are less available.”
White-collar layoffs are a wave, not a wave
But while the job losses are sudden and no doubt devastating for the people affected, it’s not the wave of job losses that signals a recession, economists say.
“We’re not in a recession yet,” says ADP chief economist Nella Richardson, “and we may not know we are until it’s over.”
The national unemployment rate remains low at 3.5 percent, and less than 1 percent of the workforce is laid off each month, near a record low. GDP rose more than expected last month. And jobless claims fell by 6,000 last week to 186,000 people who filed for unemployment benefits. Entering the pandemic, that number rose to about 200,000 people seeking help each week.
The recent wave of layoffs is “painful and worrisome,” Richardson says, but “they are waves, they’re not waves yet.”
Richardson adds that tech companies may be downsizing, but they’re still investing in building the technology of the future and, by extension, the workforce. Take, for example, Microsoft, which this month announced it was laying off 10,000 workers and unveiled ChatGPT, days after a multibillion-dollar investment in OpenAI developer ChatGPT.
“Technology is improving, but if laid-off workers start filing for unemployment benefits en masse, we may not see the real impact on the overall labor market for several months,” Richardson said.
Meanwhile, ADP’s small business clients say their biggest challenge continues to be finding qualified workers, and they don’t expect it to get much better in 2023. Richardson says he is in demand and could ask for better working conditions.
White-collar employers may repeat the mistakes of jobs in the leisure, hospitality and service industries, which left workers during the pandemic recession only to face talent shortages when it returns. “We’re entering a new era of the labor market, where the timely supply of goods or workers is disrupted, and workers may not be there when they’re needed,” Richardson says.
Layoffs in the manufacturing sector can be a sign of recession
A bigger indicator of the recession, Richardson says, is the decline in hiring and increased layoffs of temporary workers, particularly in the manufacturing sector. This could be a sign that concentrated layoffs in white-collar jobs could turn into blue-collar jobs.
In late 2022, an index to measure factory activity fell for the first time since 2020, and “manufacturing is usually where the recession starts,” Richardson said.
The Wall Street Journal reports that employers laid off 110,800 temporary workers in the final five months of 2022, including 35,000 in December, the biggest monthly drop since early 2021.
Even if the United States officially entered a recession, it would be “the strangest recession in history, starting with an unemployment rate of 3.5% and consumers, by and large, doing well and incomes rising. It’s a different situation.” It’s the type of recession we’re aware of, says Richardson, which is “driven primarily by inflation and higher interest rates.
What is more likely is that the United States will enter a period of stagflation or an “anemic economy” with persistent inflation. While a recession means the economy shrinks, bottoms out, and then rebounds, stagflation means the Fed raises rates and then keeps them there, and inflation moderates but toward target 2. It does not reach its percentage.
“With stagflation, you don’t see the light at the end of the tunnel and you can have slow growth as a result,” Richardson says. “We’re sitting in the middle of a mess.”
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