Tension in the Job Market


Last Friday’s jobs report showed the US economy added 517,000 jobs in January. The unemployment rate is now 3.4%, its lowest level since 1970. This hiring strength seems paradoxical because it comes during widely publicized layoffs at some US companies, especially in the tech sector.

For several years the tech giants looked economically impervious. They dominated both the battle for attracting talent and the stock market. This all changed in 2022 when they started cutting staff. Google and Microsoft both reduced their workforces last month by approximately 10,000 workers. Amazon cut its workforce by 18,000.

Cuts of tens of thousands of jobs sound shocking, but additional context paints another picture. Analysis by Bloomberg and Yahoo Finance found that pandemic headcount growth for these tech giants meaningfully outsized their workforce reductions. For example, Microsoft and Google hired approximately 70,000 employees each, or roughly 7 times the number they just let go. Amazon expanded its workforce by three-quarters of a million people! That means recent labor cuts amount to just 2.5% of its pandemic headcount growth.

While tech company layoffs make for exciting headlines, especially at a time when workforce reductions have become stylish and cheered by investors, some level of worker terminations is routine. Over the last 20 years, 1.5 million and 2 million layoffs have generally occurred in the US economy every month. Despite essentially 5% of the American population being laid off annually, low unemployment rates have persisted.

While tech layoffs have captured the public’s attention, other businesses have announced hiring efforts, particularly in service industries. As post-pandemic consumer demand has shifted away from goods and technology based-experiences to services and in-person experiences, hospitality and travel-related businesses have needed to add back workers to meet demand. The Bureau of Labor Statistics announced 128,000 jobs added this past month in leisure and hospitality, 1.4 times its 2022 average monthly increase. The majority of US airlines have announced hiring efforts, and Chipotle plans to hire 15,000 new workers, a headcount increase of about 15%. At Nicholas Hoffman and Company, our team continues to grow in a measured way as we look forward to welcoming two new employees in the coming months.

Hiring conditions in 2023 may prove to be more fluid than in the past couple of years. The BLS’s latest data shows two open positions per unemployed worker, but a range of employers, from academia to technology and finance, have instituted hiring freezes. While talent availability may be expanding in areas like technology, workers continue to have more options than they did several years ago due to a greater prevalence of remote roles in some sectors.

From an investment perspective, a key question will be how labor market strength affects the Fed’s willingness to curtail its monetary tightening. We will be monitoring how the market perceives the likelihood of an oncoming recession with no sign yet that higher interest rates are crimping employment.

Cam Simonds