Where is the recession?
For a while, we’ve been asking where the workers are, as employers struggled to attract talent. Now, a somewhat happier question emerges: Where are the layoffs?
The Federal Reserve has raised interest rates eight consecutive times in the past year to cool the economy. This, among other factors, has prompted economists and executives to predict a recession will hit sometime this year. The ax has already been swinging in Silicon Valley for a few months, while more layoffs have also been reported across the wider world of media, logistics and other fields.
And yet: The jobs numbers released Friday showed that the nation’s employers added an astonishing 517,000 jobs on net in January. This was much higher than analysts had forecast. It also represented a sharp acceleration in net hiring, and was the fastest job growth in six months.
It now also turns out that job growth for nearly every month this past year was stronger than the Bureau of Labor Statistics had originally estimated, based on newly revised data.
Other recent indicators also show that the labor market might be, if anything, heating up, not cooling down. The unemployment rate fell to 3.4 percent; we last tied this level in 1969. The last time this measure was lower was in 1953, or 70 years ago(!). The length of the average workweek jumped, too, indicating that companies are not just hiring more people; they’re trying to squeeze even more hours out of employees already on their payrolls. That’s another sign that demand for workers remains high.
If workers are “quiet quitting,” or otherwise trying to slack off and slow down, employers are apparently not accepting their exit attempts.
The number of job vacancies, which is drawn from a different report, also rose in December (the most recent month available). That same report showed that layoff rates are hovering close to record lows.
Even the industries where you’d expect to see significant job losses look barely scathed. The information sector (media, telecom, web search, etc.), for instance, was down about 5,000 jobs in January. If you were among those laid off, that downsizing is, of course, still painful, but the overall losses were smaller than recent headlines might suggest. In some information subsectors, such as web search, employment somehow actually rose.
A note of caution: Some quirky statistical things may be happening in this report (big revisions; possibly strange seasonal adjustments; and some workers maybe counted as employed when they’re actually receiving severance). But let’s say you do take these figures at face value.
The most positive interpretation is this: Recession? What recession?
Despite tightening financial conditions, consumer spending remains relatively strong, leading employers to keep hiring. Even workers who have been laid off might be able to quickly find new positions, particularly if they’re in high-demand occupations such as software engineering. Remember, it’s not exactly tech work that’s faltering; it’s primarily growth stocks, the ones with promise of big payoffs in the future, whose business models largely depended on cheap financing and so are especially sensitive to interest rate hikes.
Meanwhile plenty of tech-related positions in lots of other industries - retail, banking - are still going begging. Even when the available jobs aren’t as well-paid or as desirable, nervous workers might still decide to take them right away. There are especially strong incentives for immigrants on high-skilled worker visas to accept any new position they can find after a layoff. That’s because these workers generally have a grace period of only 60 days to either lock down a new job - or leave the country altogether.
Another possibility is “labor hoarding”: That is, firms might be holding onto workers they don’t really need, just in case. (The fact that many employers are working their staff for longer hours, though, suggests there isn’t a lot of fat to trim.)
Labor force participation rates remain well below their pre-pandemic levels, likely due to some combination of early retirements, continuing child-care complications, illness and so on. Immigration has partly rebounded in the past year, but we’re still missing a large cohort of immigrant workers who never arrived during the early part of the pandemic.
So, perhaps even the firms that worry about a possible downturn are not yet cutting staff because they also fear not being able to easily hire back up if needed. With so much uncertainty about where the economy is headed, hanging onto the workers you already have might look prudent. This might partly explain why construction employment hasn’t shrunk, despite the decline in new home-building.
One question is how these “labor hoarders” might respond if the economy does visibly deteriorate in the coming months. They could suddenly change their strategy, stop carrying swollen payrolls and decide to slash head count en masse.
In this sense the recent wave of high-profile layoff announcements and deteriorating corporate earnings might be concerning. Some of those layoffs might not have shown up in the January jobs data depending on when the workers were laid off. But those layoffs could yet show up next month, assuming the affected workers don’t quickly find new employment.
In that scenario, a pessimistic mood could become self-reinforcing. Harvard professor (and my Post colleague) Lawrence H. Summers has referred to this as a sort of “Wile E. Coyote” moment: If the economy turns down a bit, it could abruptly turn down a lot.