Strong hiring in most industries far outpaced high-profile layoffs

Blockbuster job growth in the past several months has coincided with high-profile layoff announcements by a number of large companies.

So, how are both occurring at the same time? It’s not as contradictory as it might seem. Recent job cuts have been concentrated mainly in just a few sectors: technology, finance and media.

Relative to the US labour force of 160 million people, layoffs so far have been dwarfed by consistently vigorous hiring a monthly average of 2,48,000 jobs added over the past six months. The unemployment rate is still just 3.7 per cent, barely above a 50-year low.

It turns out that many of the companies that are now shedding jobs had over-hired during the pandemic, when they thought the trends that emerged then especially a surge in online shopping would continue apace. As the economy has normalised, many of these companies have discovered that they no longer need so many employees and have responded with layoffs.

In January, American businesses and other employers added a blistering 3,53,000 jobs the biggest monthly haul in a year. The government also revised up its estimate of job gains in November and December by a combined 1,26,000. The data provided compelling evidence that most companies, large and small, are confident enough in the economy to keep hiring.

Several of the companies that have announced layoffs are among the most well-known household names: Google, Amazon, eBay, UPS, Spotify and Facebook’s parent Meta. Not that they’ve been the only ones. Challenger, Gray & Christmas, a leading outplacement firm, reported this week that businesses announced 82,000 layoffs in January, the second-most for any January since 2009.

They’re not all low-paying jobs, either: A sector that the government calls professional and business services, a sprawling category that includes accountants, engineers, lawyers and their support staff has 1,20,000 more jobs than it did in October. Federal, state and local governments, which regained their pre-pandemic levels of employment in September, also added nearly 1,20,000 jobs over that period.

The job cuts, by contrast, have been more concentrated. The Labour Department doesn’t track technology jobs specifically, but Friday’s jobs report pointed to signs of the industry’s struggles: The unemployment rate for workers in what the government calls the information sector, which includes media and tech workers, jumped to 5.5 per cent in January from 3.9 per cent a year ago. That’s nearly two percentage points above the national jobless rate.

Companies tend to shed jobs for all sorts of reasons, sometimes to reflect changes in their business strategy or to maintain or boost their profit margins. Many high-tech companies that went on hiring binges in 2022, as the economy accelerated out of the pandemic recession, miscalculated the longer-term demand for their products and services.

In its survey of job cuts, Challenger, Gray & Christmas said the leading reason companies cited last month for laying off workers was restructuring. A year earlier, it was economic conditions, economists at Renaissance Macro noted, meaning that companies had previously worried more about the state of the economy.

Todd McKinnon, CEO of the software company Okta, said in a message announcing that the company would cut about 400 jobs that it entered 2023 with a growth plan based on the demand we experienced in the prior year.

This led us to over-hire for the macroeconomic reality we’re in today, he wrote.

A raft of other data confirms that overall, the job market is fundamentally healthy. The number of people seeking unemployment benefits, long seen as a measure of layoffs, remains at a very low level. And non-government data, including hiring tracked by the payroll provider ADP, shows that private-sector companies keep adding workers.

First Published: Feb 03 2024 | 8:17 PM IST