If you’ve been following the job market, it may seem like official reports are saying one thing, while the news headlines are saying another.
“We’re getting weekly jobless claims numbers that are the lowest since the pandemic, and nonfarm payroll blew past every estimate,” commented Steve Wyett, BOK Financial® chief investment strategist. “Additionally, there were upward revisions to the previous two months’ gains and nonfarm payroll, meaning job growth was up more than expected over the last three months.”
However, worldwide, more than 95,000 tech-sector employees have been laid off since the beginning of this year. Many in the last few months have been at high-profile companies—like Microsoft, Amazon and Google—that service other businesses and have workers across the United States. And tech companies are not the only ones culling their staff: layoffs also have been reported by media corporations such as Disney and financial services firms such as Goldman Sachs.
Tech jobs still plentiful
The answer behind this seemingly contradictory news may be that many of the layoffs are occurring in the tech sector, where it’s still a job-seeker’s market.
“Most of the people getting laid off from the tech companies are getting relatively attractive severance packages and they are not officially unemployed until that severance package runs out,” Wyett explained.
“If someone has an eight-week severance package, it would be at least eight weeks. If they get hired during that period, then they won’t show up in the number of jobless claims. And anecdotally, it appears that these people are getting picked up by new companies very quickly.”
In January, tech hiring in the U.S. economy fell into negative territory—meaning a reduction in the workforce—for the first time in more than two years, with tech jobs throughout the economy (including those not at tech companies) declining by 32,000, according to data from CompTIA. Meanwhile, technology companies dropped 2,489 positions that month, CompTIA found.
However, at the same time, unemployment in the technology market fell for the second month in a row, as many of the layoffs that have occurred in technology organizations have been of non-technical workers, such as those in sales and marketing, according to CompTIA. Furthermore, salaries for all IT positions are up by 5.3% this year, due to the continued lack of qualified job candidates, a Computerworld article noted.
What this means for the economy—and for you
Looking at the broader economy, national reports have been consistently showing a strong labor market with low unemployment and large number of open positions. In January alone, total nonfarm employment actually rose by 517,000, while the unemployment rate stayed relatively steady at 3.4%, according to statistics from the Bureau of Labor Statistics.
This job growth has been despite the fact that, for nearly a year, the Federal Reserve has been raising rates to purposely slow the economy, which theoretically should lead to fewer jobs and thus lower wages and ultimately lower inflation.
In fact, the day that January’s employment numbers were released, stocks fell broadly out of fear that the persistently strong job market will influence the Fed’s plans for future rate hikes.
“Economic commentary seems to have gone from the risk of a hard landing to a soft landing to no landing,” Wyett noted. “It’s not that we’re cheering for a recession to occur, but the economy has shown a remarkable amount of resilience in light of all the monetary tightening the Fed has already done.”
If the labor market doesn’t cool, the fear is that inflation will stay high—particularly in the services sector, where wages have been bringing prices up. That would mean continued higher prices for travel, dining in restaurants and other services.
“Might the Fed actually need to do more than what we’re expecting, even at this time? That’s the quandary that the Fed finds itself in, unless it backs away from this Phillips Curve-centric approach,” Wyett explained. “The Phillips Curve is an economic theory that ties the core rate of inflation to wages, and wages are driven by strength in the labor market.”
And although there are some areas of the economy that are slowing, such as the manufacturing sector, it’s unlikely the Fed will cut rates anytime soon, he continued. That means that consumers and businesses will continue to have to pay more on the debt they owe, such as credit card balances.
“It’s really hard to see the Fed lowering rates at the end of the year, despite the fact that it’s what futures markets are showing,” Wyett said. “It’s hard to see the amount of economic weakness that we would need to have for that scenario to unfold.