Cracks in the Once Robust US Job Market... Consecutive Layoffs Sound the Alarm

[Image source=AP Yonhap News]

[Asia Economy Reporter Kim Hyunjung] Bloomberg reported on the 25th (local time) that the recent wave of large-scale layoffs is sending warning signals to the U.S. labor market, which had been robust for years.

The news agency stated, "Cracks are appearing in the U.S. labor market, signaling that the strong labor market will not persist." Indeed, in recent weeks, companies have announced plans for tens of thousands of layoffs and hiring freezes. According to the tech job website TrueUp, most of these layoffs or hiring freezes have come from technology, cryptocurrency, and various real estate companies, with at least 37,000 people laid off since May. Securities firms and banks, including JPMorgan Chase, are also reducing related personnel as the housing market cools.

The situation appears to be worsening due to a combination of slowing consumer demand, the worst inflation in 40 years, and interest rate hikes by the Federal Reserve (Fed). Century Aluminum, the second-largest aluminum producer in the U.S., recently announced layoffs of 600 employees.

Economic data suggests more is underway. Overtime hours in manufacturing have declined for three consecutive months, marking the longest downward trend since 2015. The four-week average of unemployment claims, which is less volatile than weekly figures, has risen to its highest level since January, and nationwide wage growth has cooled.

[Image source=Reuters Yonhap News]

Bob Schwartz, Chief Economist at Oxford Economics, explained, "The evidence is mounting," adding, "Workers are definitely losing some bargaining power." He continued, "We are at a turning point, and the Fed is accelerating that process."

Economists have now begun discussing not whether the labor market will slow down, but how quickly it will do so. This discussion solidified after the Fed chose its largest rate hike since June 1994 (0.75 percentage points) in June, and Chairman Jerome Powell indicated that at least a 0.50 percentage point increase would be made at the next meeting.

The wave of layoffs, which had so far been limited to interest rate-sensitive industries like real estate, is increasingly likely to spread more rapidly to other sectors. Big tech companies are already grappling with higher borrowing costs. Many companies currently laying off employees explain that they hired too many workers during the pandemic to meet the sudden surge in demand when the economy reopened. Cryptocurrency companies like Coinbase Global, which are laying off more than 1,000 employees, have been hit hard following explosive growth last year, making layoffs inevitable.

The news agency assessed, "The Fed's rate hikes are set to slow all demand, including labor demand." The central bank expects the unemployment rate to rise to 4.1% by 2024, which is optimistic compared to recent Wall Street estimates. Nomura forecasts the unemployment rate will reach 5.9%, the level seen in June last year, by the end of 2024.

Troy Ludka, U.S. Economist at French investment bank Natixis, said, "The labor market is currently strong but deteriorating and will worsen very quickly," predicting the unemployment rate will reach at least 5% by early 2023. He added, "The tension we are seeing now in the labor market is a response to the tremendous growth seen a year ago," and "The fact that the economy is slowing now means the labor market will also slow."