A puzzling contrast has emerged in the US labor market in recent months: Announced job cuts keep mounting but official employment data from the government continue to point to resilient demand for workers. Collectively, corporations announced more than 100,000 layoffs in January alone. A new report from Goldman Sachs Research tackles the question of whether the spate of job cuts means the labor market has already entered a downturn.
“The past week of labor market data answered that question with a resounding ‘no,’” lead author Ronnie Walker writes. The economists point to evidence to support that conclusion, including nonfarm payrolls growing by 514,000 in January, the jobless rate edging down to a 54-year low, job openings increasing by 572,000 in December, and initial jobless claims falling for the fourth time in five weeks.
Walker and his co-authors also point to the types of companies that have been behind the recent surge in planned job cuts. Many are in the technology sector and hired aggressively during the pandemic—growing headcount by 41% on average—often because they “over-extrapolated” pandemic-related trends such as increases in time spent online, the authors write. They are now seeing sharp declines in their stock prices and at least in some cases appear to be responding to investor demand to cut costs by shrinking their workforces.
“These characteristics suggest that the companies conducting layoffs are not representative of the broader economy and that many of the recent layoff announcements do not necessarily signal a weaker demand picture that might have wider implications,” the report concludes.
While big job cuts make for big headlines, the total number of announced corporate layoffs is still small relative to the total number of layoffs across the economy, according to the report. A typical January sees more than 2 million layoffs on average on a not-seasonally adjusted basis, and the research team’s real-time estimate of the layoff rate shows it has only increased back to its pre-pandemic rate, which was low by historical standards.
Labor market measures such as the JOLTS layoff rate and initial jobless claims have yet to spike, indicating that the ripple of layoffs announced so far aren’t leading to a wave, the authors write. In addition, not every layoff translates into a lasting increase in unemployment. The job-finding rate among unemployed individuals has been historically high in recent months and is still above pre-pandemic rates in most industries, including information (which includes tech companies).
“We would be more concerned about undue labor market deterioration if we began to see elevated layoffs in industries where job finding rates were particularly low,” writes Walker and his colleagues, who add that would likely weigh on consumer spending and spill over to other parts of the economy. “For now, this is not a major concern because the job openings rate remains above the pre-pandemic level in every major industry outside of information.”
This doesn’t rule out the possibility of further job-cuts announcements. According to the report, roughly 15% of companies in the S&P 500 boosted headcount by 40% or more since the start of the pandemic, but only one-fifth of them have announced layoffs so far.