Tech layoffs may not be a bad omen for U.S. economy at large

A recent wave of layoffs in the tech sector may lead American workers to wonder whether their job is next on the chopping block.

So far, evidence is scant that the thousands of cuts at major technology firms — Meta, Amazon and Twitter, to name a few — are bleeding into the U.S. economy at large, according to labor economists.

Federal data points to continued strength in the labor market, characterized by a high demand for workers, ample job openings and layoff rates that, in aggregate, continue to hover near record lows.

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The November jobs report, issued Friday by the U.S. Department of Labor, was the latest evidence of a resilient jobs market that continues to defy gravity. Employers added 263,000 jobs — well above expectations — and the national unemployment rate held steady at 3.7%, just slightly above a half-century low.

In all, the labor market seems to be “cruising” into 2023, said Nick Bunker, head of economic research at the Indeed Hiring Lab.

“I do think what’s happening in the tech sector isn’t really representative of what we’re seeing in the overall economy right now,” Bunker said.

The federal Job Openings and Labor Turnover Survey, issued monthly, is perhaps the best gauge of layoff trends on a national basis, economists said. The layoff rate — which measures layoffs as a share of total employment — had never fallen to 1% or below before the pandemic era.

That precedent was shattered last year. The layoff rate has been at or below 1% during every month since March 2021, according to JOLTS data.

One caveat: The data lags. The latest release, on Wednesday, was for October. Many tech layoffs were announced in November, meaning they may show up in the next JOLTS report, said Daniel Zhao, lead economist at Glassdoor.

For now, the overall number of American workers laid off has averaged about 1.4 million a month. By comparison, over 2017 to 2019 layoffs averaged about 1.8 million per month, Bunker said.

Put another way: Current layoffs would need to jump by 400,000 a month on a sustained basis to return to 2017-2019 levels — and even that was considered a period of labor market strength, Bunker said.

Elsewhere, job openings — a barometer of employer demand for workers — remain well above their pre-pandemic trend, despite having declined from peak levels earlier this year.

There were about 10.3 million job openings in October. Before the pandemic, that number hadn’t breached 8 million. Businesses are therefore still looking to hire workers at near-historic levels.

Further, the ratio of job openings to unemployed individuals is about 1.7 — meaning available jobs are almost double those of people looking for work.

Unemployment claims are another gauge, albeit less reliable since they’re not a direct measure of layoffs. They are counted weekly, so offer a more real-time update. Applications for jobless benefits have remained relatively level and near their pre-pandemic trend line.  

Overall, U.S.-based firms announced 76,835 job cuts in November, led by the technology sector, according to a report published Thursday by Challenger, Gray & Christmas. That was more than double the number from the prior month, and five times that of November 2021.

However, total job cuts in 2022 are the second-lowest on record, trailing only behind last year, according to the report. The firm started tracking data in 1993.

Layoffs among major tech firms are, in many cases, partly an unwinding of overzealous hiring during the pandemic; it’s not necessarily a harbinger of broader economic malaise that will lead to job cuts in other sectors, labor economists said.

Meta CEO Mark Zuckerberg alluded to this dynamic in a recent letter to employees explaining job cuts, which impact more than 11,000 workers.

“At the start of Covid, the world rapidly moved online and the surge of e-commerce led to outsized revenue growth,” Zuckerberg wrote. “Many people predicted this would be a permanent acceleration that would continue even after the pandemic ended. I did too, so I made the decision to significantly increase our investments. Unfortunately, this did not play out the way I expected.”

Amazon CEO Andy Jassy also said the company had “hired rapidly the last several years.” However, Jassy said the economy “remains in a challenging spot.”

The U.S. Federal Reserve is raising borrowing costs to cool the labor market and overall economy, in a bid to tame persistently high inflation. The extent to which the central bank will pump the brakes on the economy remains to be seen.

Even though the U.S. economy at large isn’t seeing mass layoffs, tech companies are partly responding to a “real economic trend,” Zhao said.

“It’s only obvious what’s the first domino [to fall] in hindsight,” Zhao said. “I don’t think we can rule out that these layoffs aren’t the first domino.”

However, Zhao said, the job market remains strong and has continually surprised to the upside this year, suggesting there won’t necessarily be a broader contagion.

“I feel like that has been the theme of 2022 — we keep expecting the job market to slow more dramatically, and it remains surprisingly strong,” he said.