Blockbuster employment growth in recent months has coincided with prominent layoff announcements from several large corporations.
So, how can both phenomena occur simultaneously? It’s not as contradictory as it seems. Recent job reductions have primarily affected just a few sectors: technology, finance, and media.
In comparison to the U.S. labor force of 160 million individuals, layoffs thus far have been overshadowed by consistently robust hiring — an average of 248,000 jobs added monthly over the past six months. The unemployment rate remains at 3.7%, barely above a 50-year low.
Many of the companies now downsizing had ramped up hiring during the pandemic, anticipating that pandemic-driven trends, especially the surge in online shopping, would continue. However, as the economy stabilized, many of these companies found themselves with excess staff and responded with layoffs.
In January, American businesses added a staggering 353,000 jobs — the highest monthly increase in a year. The government also revised its estimates of job gains in November and December upward by a combined 126,000. This data provides compelling evidence that most companies, both large and small, are confident enough in the economy to continue hiring.
Several well-known household names, including Google, Amazon, eBay, UPS, Spotify, and Facebook’s parent company Meta, have announced layoffs. Challenger, Gray & Christmas, a leading outplacement firm, reported that businesses announced 82,000 layoffs in January, the second-highest for any January since 2009.
Here are some reasons why these seemingly divergent trends are occurring:
- Job Gains and Job Cuts Are Happening in Different Industries: Most industries have continued to add workers over the past three months, including manufacturing, hospitality, healthcare, and professional services.
- Layoffs Don’t Indicate a Weak Economy: Companies often cut jobs for various reasons, such as changes in business strategy or efforts to maintain or improve profit margins. Many high-tech companies that ramped up hiring in 2022 misjudged the long-term demand for their products and services.
- The Layoffs Are Spread Over Time: High-profile job cuts often involve layoffs that occur gradually over several months, as seen in UPS’s announcement of 12,000 job cuts over the year.
- The Scale of the Economy: Even significant layoffs, like those announced by UPS, don’t significantly impact the vast U.S. economy. Each month, millions of people leave or are laid off from their jobs, while millions more are hired.
Overall, various indicators suggest that the job market remains fundamentally healthy, despite isolated instances of layoffs in specific industries. Unemployment benefit claims remain low, and private-sector companies continue to add workers, underscoring the resilience of the U.S. economy.