The job market is ‘hot,’ so what’s going on with layoffs?

(NewsNation) — The U.S. labor market has been called “hot” and “surprisingly resilient” in recent weeks, but several companies have still announced substantial job cuts.

Some of the biggest names in tech — Microsoft, Google, Meta and Salesforce — have all slashed jobs recently. Other major corporations like UPS and Citigroup are also cutting thousands of positions.

Those headlines have sparked concerns among American workers, with discussions of “layoffs” up 27% year-over-year on the employee review website Glassdoor.

But so far, the heightened concern isn’t reflected in the underlying data. In December, there were 1.6 million layoffs, according to the Bureau of Labor Statistics (BLS). That number is slightly higher than the 1.5 million who were let go in December 2022, but at 3.7%, the unemployment rate is still near a 50-year low.

“When you look at the whole economy, the level of layoffs is actually lower than it was before the pandemic,” said Daniel Zhao, lead economist at Glassdoor.

The government data for January won’t be available until March, but an analysis by executive coaching firm Challenger, Gray & Christmas suggests layoff announcements surged to start the year. Sectors like tech and finance saw the most cuts, the report noted.

However, those industries — which tend to receive a disproportionate share of media attention — don’t reflect most Americans’ workplaces, said Nick Bunker, director of North American economic research at employment website Indeed.

“The good news is for the vast majority of industries and occupations, it’s more a question of growth rather than retrenchment,” Bunker said.

Here’s what to know about layoffs and the current labor market.

Is the job market still strong?

One of the ways economists gauge the labor market is by looking at how many jobs are added from month to month. Those numbers have come down since the post-pandemic hiring boom but remain well above the pre-COVID average.

Last year, employers added an average of 255,000 jobs to their payrolls each month, consistently defying expectations. By comparison, the monthly average from 2015 to 2019 was 190,000.

Job openings followed a similar trend, declining in 2023 from 10.6 million in January to 9 million in December but still higher than the 6.4 million average from 2015 to 2019.

And despite the Federal Reserve’s aggressive interest rate hikes, the unemployment rate has barely moved over the past two years and remains historically low. Wage growth has started to moderate, but due to lower inflation, the rise in hourly earnings is outpacing rising prices.

The ongoing “cooling” is part of the Federal Reserve’s goal, as policymakers try to pull off a “soft landing” — tamping down inflation without pushing the economy into a recession.

Why are tech layoffs happening?

The job cuts in the tech sector come after a wave of hiring in recent years as companies bulked up in anticipation of what the future held. Now, with more information, many are recalibrating.

“They’re starting to grapple with the fact that some of those pandemic-era trends that they bet on, didn’t end up playing out,” said Zhao.

The arrival of new, powerful artificial intelligence tools could further disrupt tech jobs, but for now, Bunker agreed that over-aggressive hiring is the more likely explanation for the recent cutbacks.

Today, job postings in software development are roughly a third of what they were in March 2022, according to Indeed data. Media and communications postings have also plummeted.

In January, “restructuring” was the most-cited reason for job cuts across all sectors, while AI was blamed for a tiny fraction of them (less than 1%), according to the Challenger, Gray & Christmas report.

Should workers be worried?

Annual inflation eased to 3.1% last month, significantly down from the 9.1% peak in June 2022. There’s still more to do to hit the Fed’s 2% target rate, but so far, concerns about skyrocketing unemployment haven’t come to pass — a sign that taming inflation may not require mass layoffs.

“Inflation has come down quite a bit without unemployment spiking, so recently, it sounds like the Fed has been saying, ‘Hey, we don’t actually want the labor market to deteriorate anymore,'” Bunker said.

Bunker is “cautiously optimistic” that most Americans won’t have to be inordinately concerned about layoffs in the year ahead.

Zhao pointed out that even within struggling sectors, companies’ hiring practices can vary significantly.

“I think it’s more important than ever for job seekers to do their research to figure out which industries in their area are still hiring and even within those industries, which companies are doing well,” he said.

Last month, nonfarm payrolls jumped 353,000 from the month prior, according to preliminary data.

So which industries are hiring? The health care sector added more than 70,000 workers in January. The number of retail roles increased by 45,000 from the month prior, and social assistance jobs went up by 30,000.