Female warehouse manager pulling a pallet truck
The U.S. economy added 263,000 jobs in November, the unemployment rate remained at 3.7%, and the average hourly wage increased by 5.1% compared with last year at this time.
Although layoffs and hiring freezes in the tech sector garnered attention, the Labor Department reported Friday that there is a steady demand for workers. This runs counter to the Federal Reserve’s agenda to whip inflation by cooling down the job market inflation is still hovering around 7.7%, around a 40-year high.
The continued competition for businesses to find workers causes an upwards wage spiral. This was prominent in the services sector as wages are the highest cost for many employers. The Fed is worried that this will add to the currently high inflation rate and will increase interest rates to dampen down hiring.
Job Losses Are Good News For Jerome Powell And The Fed
Job losses have historically been viewed as problematic as it harms the impacted families and the economy. In a bizarre twist, Jerome Powell, chair of the Federal Reserve Bank, purposefully wants to dampen hiring by raising interest rates along with other measures to contract the economy to whip inflation down from 40-year record high levels. For the Fed, job losses are a positive indicator in the war against runaway inflation.
According to The Wall Street Journal, economists worry that higher interest rates run the risk of too many layoffs leading to a possible recession. There are reports that some businesses are holding off on downsizing as they saw how hard it was to attract, recruit and onboard new personnel over the last few years. They’d instead hold onto their team members and hunker down through the current turbulence. The Dow Jones Index, a benchmark for the stock market, was down 300-plus points at the open as the hot jobs report could make the Fed even more aggressive.
The Job Market Is Still Resilient
Despite the Fed’s hike of interest rates, the U.S. labor market has been stubbornly strong. With the increase in company headcount and the continued need to find top talent, wages have increased. The average hourly pay jumped 5.1% compared with a year ago. The higher wage spiral represents a challenge to the Fed’s inflation-fighting agenda. In their efforts to spike growth, Powell increased benchmark interest rates from around zero to about 4%, with an ultimate target of 2%.
Demand for workers outstrips the supply of available people. Although the number of job openings dropped, the economy has around 1.7 jobs available for each unemployed worker. The problem is that the open jobs do not necessarily correlate with the people searching for opportunities. Many of the jobs remain open because they are deemed less than desirable as post-pandemic potential job seekers demand high-quality roles, a better life and work balance, and to be compensated fairly.
The labor force contracted in November by 186,000 people due in part to early retirements, lack of immigration to the U.S., Covid related health issues, deaths, and the need to look after family members.
American Consumers Keep Spending, Even If Means Dipping Into Savings
Another challenge for the Fed is that Americans keep shopping. In October, consumer spending rose as consumers continued to buy cars, dine out at restaurants, travel and attend concerts and sporting events. These expenditures add to the inflation. For some families, spending could be problematic. Americans are relying upon credit cards, with high-interest rates, to make their purchases. They are also dipping into their savings.
Tech Companies And Startups Have Borne The Brunt Of Layoffs
A toxic combination of runaway inflation and interest rate hikes has negatively impacted the tech sector, which is highly rate-sensitive. The high-flying tech sector downsized more than 140,000 workers in 2022.
Amazon announced in a November blog post that it will be conducting layoffs. The retailing giant will separate a reported 10,000 employees from payroll, according to the New York Times. Foreshadowing what was coming next, human resources was also part of the layoff. When HR people are downsized, it's a harbinger of future layoffs and hiring freezes.
One day later, CEO Andy Jassy warned employees in a corporatewide memo, “There will be more role reductions as leaders continue to make adjustments.” Jassy added that managers would be reviewing their teams and scrutinizing “workforce levels” to make the difficult decisions of who will stay or be asked to leave for the “long-term health” of the company. Jassy did not qualify the number of people who will be let go in 2023.
Meta CEO Mark Zuckerberg announced that 11,000 workers would lose their jobs. Meta has had to contend with its disastrous foray into the metaverse, privacy issues and the ascendancy of TikTok stealing its thunder and market share.
Elon Musk, the newly self-appointed “chief twit” at Twitter, feels the pressure to turn the social media company around fast. He acquired the tech platform for $44 billion, although Twitter has failed to be profitable for the last eight years. To reduce costs, Musk has reportedly cut 50% of Twitter’s staff, and workers are continuing to leave the social media platform.
Lyft is cutting 13% of its workforce—approximately 500 people. This will be the second round of layoffs for the ridesharing company this year. Digital bank Chime is laying off about 160 people—12% of its staff. Digital payments giant Stripe is cutting 14% of its workforce, CEO Patrick Collison wrote in a staff memo. The layoffs will impact more than 1,000 employees.
Real-estate platform Opendoor is cutting 550 jobs, CEO Eric Wu announced in a blog post. Oracle, the world’s largest database management company, laid off as many as 200 employees in its cloud infrastructure unit on November 1. This comes a week after the company "quietly" laid-off workers in another cloud division.
The list keeps growing. Salesforce, DoorDash, CISCO, Carvana, Roku, Coinbase, HP and others announced downsizing last month, according to Crunchbase.
