Why the job market is booming despite high-profile layoffs
The job market is booming despite high-profile layoffs at companies like Amazon, Microsoft, Twitter and Goldman Sachs.
The economy added a staggering 517,000 jobs in January, more than double the employment growth a month prior and well above the breakneck pace of some 400,000 monthly jobs added on average last year, according to government data released on Friday.
In turn, the unemployment rate fell to 3.4%, the lowest figure since 1969.
Layoffs at prestigious positions at companies with household names send a shudder through workplaces nationwide but the news doesn’t indicate much about broader job trends, since tech and finance are relatively small sectors with limited ties to the larger economy, labor economists told ABC News.
Perhaps more improbably, the hiring blitz has defied an aggressive series of rate hikes from the Federal Reserve aimed at slowing down the economy and slashing inflation, the experts said. Tech and finance are more sensitive to rate hikes than other sectors.
“Tech is omnipresent in our lives so it feels like it should be omnipresent in our labor market, but that’s not necessarily the case,” Kathryn Edwards, a labor economist and policy consultant, told ABC News.
Sales at top tech firms have retreated from the blistering pace attained during the pandemic, when billions across the world were forced into isolation. Customers stuck at home came to rely on delivery services like e-commerce and virtual connections formed through social media and videoconferencing.
As consumers return to habits that more closely resemble pre-pandemic life, companies have encountered diminished revenue growth and the need to reduce their workforce, Rachel Sederberg, a senior economist at labor analytics firm Lightcast, told ABC News.
“They’re making a course correction to come back to the economic reality that we’re all facing,” she said.
Exacerbating this pain, the tech sector – alongside peers in finance – suffers from more expensive borrowing costs tied to a string of interest rate hikes imposed by the Fed.
The Fed on Wednesday said it was raising its short-term borrowing rate another 0.25%, extending a monthslong effort to cool the economy and dial back inflation.
Interest rate hikes make it more expensive for banks to access money that they in turn lend to companies and households, hurting the finance industry’s profit margins. Also, rate hikes typically hurt the stock market, damaging investor returns.
High interest rates make it more expensive for tech companies to access cheap capital, which they rely upon to fuel early growth, experts said.
“Finance and tech, Silicon Valley and Wall Street, have been hardest hit by the Fed’s interest rate increases but layoffs there are more than offset by an absence of layoffs on Main Street,” Julia Pollak, a labor economist at ZipRecruiter, told ABC News.
Last year, the smallest number of Americans lost their jobs to layoffs and firings of any year since data collection began in 2000, Pollak said, citing government data.
“Layoffs are very, very low,” Pollak said.
Government data released on Friday showed robust hiring in the service sector as pandemic fears continue to wane. Government, health care and retail were also among the sectors spearheading the hiring surge.
The strong hiring owes in part to an excess of job openings when compared to the number of available workers, leaving employers eager to hire whichever workers they can find and hold onto the ones they have, Edwards said.
“We’ve heard employers say for almost two years now that they’ve had a hard time finding workers,” she said. “I wouldn’t be surprised if people see an employee they can get, they will grab it.”
The pandemic brought a surge in early retirement among baby boomers, alongside other factors like long COVID that have prevented some working-age adults from rejoining the job market.
A stock market tear during the pandemic ballooned the assets of some older Americans, allowing them to subsist without income, experts previously told ABC News. Meanwhile, the heightened risk of severe illness faced by older Americans amid the COVID outbreak left them fearful of exposure at the workplace.
“The baby boomer retirement has put a lot of strain on the labor market,” said Sederberg of Lightcast. “I’m not worried about layoffs.”
Despite strong hiring in January, there was no change in the labor force participation rate, a measure of the share of working age adults in the workforce or seeking work, suggesting many Americans remain on the sidelines.
At a press conference on Wednesday, Fed Chair Jerome Powell said there remains a path for bringing inflation down to normal levels without causing a significant rise in unemployment.
In other words, Powell reiterated the possibility of a soft landing, in which the Fed slows the economy and brings down inflation while preventing the U.S. from entering a recession and causing a spike in unemployment.
The jobs report released on Friday suggests the potential for an even more optimistic outcome, Pollak said.
“Now we’re seeing something even more improbable than that soft landing,” she said. “The best case scenario is rather than a small increase in unemployment, we actually see falling unemployment.”