The US jobs mystery

How do we reconcile all the headlines of massive job cuts by some of America’s biggest companies — totalling more than 100,000 just in January — and blockbuster employment reports?

Goldman Sachs economists led by Jan Hatzius appear to have given up their weekends to explore this enigma. In a report published this AM, they pointed out that most of the lay-offs have been concentrated among tech companies that went on a hiring binge over the pandemic and are now trimming costs to rejuvenate their share prices.

Therefore, they don’t see the spate of job cuts from the likes of Alphabet, Amazon, Dell, Meta and, erm, Goldman Sachs as a harbinger for a wider employment downturn. Here are the main bullet points of the report, titled “A Ripple, Not a Wave.”

— We find that three characteristics are common to many of the companies that have recently announced a large number of lay-offs. First, many are in the technology sector. Second, many hired aggressively during the pandemic — on average, their headcount grew 41% — often because they over-extrapolated pandemic-related trends such as increases in demand for goods or time spent online. Third, they have seen sharper declines in their stock prices, which have fallen 43% from their peaks on average, and in some cases appear to be responding to investor demand to cut costs by shrinking their workforces rather than to a worsening in the demand outlook.

— These characteristics suggest that the companies conducting lay-offs are not representative of the broader economy and that many of the recent lay-off announcements do not necessarily signal a weaker demand picture that might have wider implications.

— Consistent with this, our more representative real-time estimate of the lay-off rate has increased recently but only back to its pre-pandemic rate, which was low by historical standards.

— It is also important to bear in mind that not every lay-off translates into a lasting increase in unemployment because most workers find new jobs. In recent months, the job finding rate among unemployed individuals has been high by historical standards.

— One concern that is often raised is that the recent lay-offs have been concentrated in particular industries, especially technology, while hiring has been concentrated in other industries, often lower-paying ones. We find, however, that job finding rates are above pre-pandemic rates in most industries (including information, which includes technology companies) and above expansion norms in all major industries, and that job openings rates remain above the pre-pandemic level in every major industry except information.

If you want to dig into the full report, see the charts etc, you can find it here.