January 2023 Market Brief: The Oscar for Best Picture of the Year Goes to…
The Economy and Labor Market

Listen to the brief

It's award season and while some in the Academy are debating the merits of Top Gun: Maverick as a contender for best picture, our vote is with The Economy and Labor Market. Drama, suspense, riveting subplots—this real-life saga has it all. In fact, we'd argue The Economy and Labor Market and its cast could sweep several award categories.

But what really sets this movie apart is its winding and completely unpredictable ending. In fact, every time you think you've figured it out, one of the character's screams, "Not so fast!"

Job Growth, Layoffs, and Job Quits

While all eyes are on layoffs, the big plot twist of January was the number of jobs added to the economy. No one saw that coming. Economists predicted 187,000 jobs added, which was well short of the 517,000. Of course, as with every month, these figures are subject to revision once additional data is finalized. Regardless, healthcare, construction, consumer and industrial products, and architecture and engineering all saw big jumps in hiring.

In fact, several of the companies that announced layoffs still plan to hire.

Boeing, for example, which recently announced plans to add 10,000 jobs will also eliminate 2,000 jobs. In an interview with The Seattle Times, Boeing's Mike Friedman, senior director of communications, indicated most cuts would occur through normal attrition and layoffs in professional services—human resources and finance—but that the company still planned to hire production workers and engineers. 

Here are a couple explanations that may help connect some dots:

1. Scaling back after explosive growth. As we've mentioned before and have illustrated below, several technology companies ramped up hiring between 2018 and 2022 as the world went digital, particularly during the pandemic. Meta, for example, grew its workforce by 144 percent in four years (51,000 employees). However, as the economy showed signs of slowing and interest rates spiked, those same companies that experienced rapid growth are beginning to cut back and restructure priorities, including Meta, which cut 11,000 employees (about 12 percent of its workforce).

This graphic shows similar trends among a few of the big technology companies, with the exception of Apple, who's slower growth has yielded zero layoffs thus far.

2. Layoff contagion. We wrote about this type of phenomenon during The Great Resignation era in describing the high rate of job quits: When one employee leaves, the departure can have a ripple effect on others in the company. In many ways, we may be seeing a similar phenomenon with layoffs. As big companies lay off and stock prices increase as a result, it leaves other CEOs and Boards of Directors to ask, “should we be laying off too?”

Regardless of the size of the layoff or the rationale, no one gets out unscathed. Employees take a hit emotionally, personally, and financially; companies take a hit in reputation, productivity, and culture.

So, the question left to answer as the dust settles is: Did the costs saved offset the costs incurred?

Particularly as the economy picks back up and the competition for skilled workers resets. And since workers still aren't shy about leaving their jobs. December' job quits remained above 4 million for the 18^th month in a row.

Unemployment Rates, Labor Force Participation Rate, and Job Openings

Even with the layoffs in technology and the quarter percentage point interest rate increase by The Fed, unemployment fell even further in January from 3.5 percent to 3.4 percent—a new 53 year low. It's even lower for STEM fields—and has even DECREASED in some STEM occupations the last three months. Computer and mathematical occupational unemployment went from 2 percent in November to 1.5 percent in January.

While it's possible the layoffs haven't caught up to the unemployment rate yet, either due to workers finding new jobs quickly, or accepting severance packages that would delay their ability to file for unemployment, it remains a very tight labor market with 11 million job openings still unfilled in December 2022.

Plenty of Work if We Can Find the People to Do It

Between the Infrastructure Investment and Jobs Act and the Inflation Reduction Act, the 117th Congress invested $1.25 trillion across the transportation, energy, water resources, and broadband sectors for the next five to 10 years. However, state and local governments, utilities, and related industries will confront several challenges in putting that money to work, including where to find the people to do it.

As several states and industries prepare for the work that lies ahead, development of talent pipelines is central to their planning, adding yet another plot twist to this riveting economy and labor market.

Connecting the Dots

1. Employee Engagement Has Never Mattered More. Even when limited in scope, everyone is impacted by layoffs. Survivors experience guilt, are assigned more work, and wonder whether there will be a future round of cuts they should worry about. Employees at companies with no plans to lay off worry those plans will change. During the 2008 recession, researchers discovered that a 1 percent reduction in staff through layoffs resulted in 31 percent of voluntary turnover among remaining staff. Therefore, regular check-ins with employees have never been more important. It's an uneasy and strange environment for everyone right now. If economists don't know what to make of it, chances are no one does. So, keep communicating, keep being interested in what employees need, and keep finding ways to offer it.
2. Is Finding a Job Really that Easy Today? Sure, there are plenty of openings despite historically low unemployment levels, but how easy is it to find and secure those jobs? For those laid off, or just interested in new opportunities, job searches are very different today than they were five years ago, let alone twenty years ago. Yes, there have never been more avenues to apply for jobs, but that assumes every candidate knows the ins and outs of creating LinkedIn profiles and resume building and keywords and computers. Which isn't a great assumption considering 92 percent of applicants don't ever finish the process—whether it's just too long (51 clicks according to some estimates) or way too complicated (ID verification, etc.) or a mismatch between what's expected and what's desired. Applicants may also be demotivated to see how many applications a job posting has received (a feature of online platforms) or read the latest statistic on how many job applications it takes to get an offer (estimates are anywhere from 21 to 200). There are more jobs than workers available for many industries, but how “easy” is it is to get them might be a completely different story.