Layoffs are not necessarily cause for broader economic alarm

Justin Ho Jan 2, 2023
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Hiring outpaced layoffs at a rate of 4 to 1 in October. Angela Weiss/AFP via Getty Images

Layoffs are not necessarily cause for broader economic alarm

Justin Ho Jan 2, 2023
Heard on:
Hiring outpaced layoffs at a rate of 4 to 1 in October. Angela Weiss/AFP via Getty Images
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It’s a big week for jobs data: On Friday, we’ll get the government’s official jobs report for December. And on Wednesday, we’ll get the latest Job Openings and Labor Turnover survey. 

That report will tell us how many layoffs happened in November. Certain industries, like tech and finance, have been letting workers go. But that isn’t necessarily a sign that the broader economy is slowing down.

The number of layoffs has remained well below where it was before the pandemic. In October, hiring outpaced layoffs at a rate of 4 to 1.

Many companies still need to hold on to workers, said Menzie Chinn, an economics professor at the University of Wisconsin.

“I think you’d need a much higher ratio of layoffs to hiring in order to be alarmed.”

Even though many big tech and finance companies have been cutting jobs, weekly unemployment claims data show that people aren’t staying unemployed for long.

“So what that indicates is that even if someone becomes unemployed, they’re reasonably able to secure new jobs,” said Kathy Bostjancic, chief economist at Nationwide.

If the economy slows down and consumer spending falls, Bostjancic said companies are more likely to pull back on hiring first.

“Profit margins shrink, revenue growth slows, then that’s going to hit corporate bottom line,” she said. “And then they’ll pull back on hiring in a more significant way.”

If that happens and layoffs start to ramp up, Bostjancic said that’s the time to worry about a recession.

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