WASHINGTON — The massive job growth in recent months has coincided with high-profile layoff announcements by a number of major companies.
So, how do both happen at the same time? It’s not as contradictory as it seems. Recent job losses have been concentrated in just a few sectors: technology, finance and media.
Compared to the U.S. workforce of 160 million people, layoffs so far pale in comparison to continued strong hiring — a monthly average of 248,000 new jobs over the past six months. The unemployment rate is still just 3.7%, barely above a fifty-year low.
It turns out that many of the companies now losing jobs overhired during the pandemic, thinking the trends that emerged then — especially a wave of online shopping — would continue quickly. As the economy has normalized, many of these companies have discovered that they no longer need as many workers and have responded with layoffs.
In January, U.S. companies and other employers added a whopping 353,000 jobs — the largest monthly gain in a year. The government also revised upward its estimate of job growth in November and December by a total of 126,000. The data provided compelling evidence that most businesses, large and small, are confident enough in the economy to continue hiring.
Several of the companies that have announced layoffs are among the most well-known names: Google, Amazon, eBay, UPS, Spotify and Facebook’s parent company Meta. Not that they were the only ones. Challenger, gray & Christmas, a leading outplacement firm, reported this week that companies announced 82,000 layoffs in January, the second-highest number in January since 2009.
Here are some reasons why these seemingly disparate trends coincide:
Across most industries, companies have continued to add more workers over the past three months. For example, manufacturers added 56,000 in November, December and January combined. Restaurants, hotels and entertainment companies gained almost 60,000 during that time. Healthcare providers – hospitals, doctor’s offices and dentists – added as many as 300,000.
They’re not all low-wage jobs, either: A sector the government calls professional and business services, a sprawling category that includes accountants, engineers, lawyers and their support staff, has 120,000 more jobs than in October. Federal, state and local governments, which regained pre-pandemic employment levels in September, also added nearly 120,000 jobs during that period.
Job losses, on the other hand, were more concentrated. The Department of Labor does not specifically monitor jobs in the technology sector, but Friday’s jobs report pointed to signs of trouble in the sector: the unemployment rate for workers in what the government calls the “information sector,” which includes media and technology workers belong, rose to 5.5%. in January, compared to 3.9% a year ago. That’s almost 2 percentage points above the national unemployment rate.
Even more confusing is why companies would lay off workers as the economy grows and consumers continue to spend. Last week, the government estimated that the economy grew at a healthy 3.3% annual rate in the October-December quarter, following robust 4.9% growth in the previous quarter.
Companies tend to cut jobs for a variety of reasons, sometimes due to changes in their business strategy or to maintain or increase their profit margins. Many high-tech companies that continued hiring in 2022, as the economy accelerated out of the pandemic recession, misjudged longer-term demand for their products and services.
In its research into job losses, Challenger Gray states & Christmas said the main reason companies cited for laying off workers last month was “restructuring.” A year earlier, it was “economic conditions,” economists at Renaissance Macro noted, meaning companies had previously been more concerned about the state of the economy.
Todd McKinnon, CEO of software company Okta, said in a post announcing that the company would cut about 400 jobs starting in early 2023 “with a growth plan based on the demand we experienced the previous year.”
“This has led us to overhire staff due to the macroeconomic reality we find ourselves in today,” he wrote.
High-profile job cuts usually involve many layoffs that are not implemented immediately. For example, UPS, the delivery and logistics service provider, announced earlier this week that it would cut 12,000 jobs this year. But it says those reductions will happen over a period of months. So they are not included in the January jobs data released Friday because the layoffs had not yet occurred.
This doesn’t necessarily mean that government employment numbers will worsen over time as cuts are made by UPS and others. The job losses are deeply disturbing and disruptive to those who suffer. But layoffs, even on the scale of UPS, aren’t really defining the great American economy. Roughly 5 million people leave their jobs or are fired every month, government data shows, while more than 5 million are hired.
A host of other data confirm that the labor market is fundamentally healthy overall. The number of people filing for unemployment benefits, long seen as a benchmark for layoffs, remains at very low levels. And data from nongovernmental organizations, including hiring tracked by payroll provider ADP, shows that private sector companies continue to add workers.