Weekend Reads | What Layoffs Tell Us About the U.S. Economy

by Kevin Schofield

These days, there seems to be a tremendous amount of disagreement about how the U.S. economy is doing. On one hand, the Federal Reserve Bank seems intent on keeping interest rates high to prevent "overheated" economic growth and the high inflation that accompanies it. On the other hand, we hear about layoffs, particularly in the tech industry, as some companies try to tighten their belts in preparation for an upcoming recession. So which is it: a booming economy that needs to be capped, or a sluggish economy where jobs are on the line?

This weekend's read attempts to answer that question with some hard numbers. The latest monthly report from Challenger, Gray & Christmas, an "outplacement" firm specializing in finding new jobs for people who have lost theirs due to corporate cutbacks, details where the U.S. economy is seeing job cuts — and also where hiring is picking up. And the picture is complex, to say the least.

In 2020, during the height of the COVID-19 pandemic, there were massive job cuts. Then, starting in late 2021 and throughout most of 2022, companies hired back many of those workers. But by November of last year, corporate America became concerned about a looming recession fueled by high inflation and high interest rates; in response, a few industries — most notably tech companies — preemptively started cutting costs (and jobs) to prepare for more difficult days. Job cuts have stayed high through much of this year; in July, it looked like the worst was over, but then in August, there was another spike.

But the job cuts have been anything but uniform: They have hit a few industries hard, moderately impacted several others, and left a handful largely unscathed. The five sectors most impacted are technology, retail, health care, finance, and warehousing. Retail has always been a seasonal industry, with big spikes in employment just before the winter holidays and big layoffs in January. But throughout 2023, in anticipation of slower consumer spending, the retail industry has been cutting jobs: almost 71,000 to date this year compared with 18,000 last year. The health care industry cuts are a bit of a paradox: Hospitals and other health care sites have been struggling to hire and keep trained workers, but they may simply be giving up and trying to change their service model to adjust to a chronic lack of workers; that issue has led to complaints from the remaining workers of understaffing and is one of the issues driving labor unrest at Kaiser Permanente facilities across the country and here in Washington.

Financial firms feel the immediate impact of high interest rates — fewer loans — so it's no surprise to see them laying off workers. The media industry, including news organizations, have also seen higher job cuts this year. On the other hand, some industries have barely been affected, including energy, utilities, government, and real estate.

Because many industries tend to centralize their operations into specific regions, not all states have been impacted equally by this year's job cuts. The five states most impacted are California, New York, Washington, Texas, and Tennessee. The high number of tech jobs in California and Washington explain how they made this list. Even within regions of the country there is little consistency from state to state: In the Eastern U.S., for example, New York, New Jersey, Massachusetts, and Rhode Island have seen a big increase in job cuts, but the other states have largely been left unscathed, and some states, such as Pennsylvania, have seen their year-over-year job cuts decline. Here in the West, four states have seen the bulk of the job cuts: California, Washington, Texas, and Nevada; all the rest are about the same as last year.

When asked the reason for their job cuts, companies said that about one-third were due to market and economic conditions, with another one-sixth due to stores or companies closing up. Despite all of the worker strikes we heard about in the press this year, there has been no increase in job cuts due to labor disputes. And there were few job cuts attributed to COVID-19 or to "artificial intelligence."

The report also dives into companies' announced plans to hire more workers. September is typically the month that holiday hiring plans are unveiled, with the retail sector leading the way with 440,000 new positions it wants to fill — though it's about 80,000 less than 2022. Most of those new positions are within just two companies: Amazon (250,000) and Target (100,000). The transportation industry has also already announced about 130,000 seasonal jobs, almost all at UPS.

Another bright spot is the energy sector, where 2023 hiring is running higher than last year's numbers.

These job numbers leave us with a muddy picture of a complicated national economy. Some companies are preparing for a downturn; others are proceeding as if nothing has changed. Our state has been hit harder than others so far because of its high employment in the tech industry, but overall, there is little in the way of a pattern that explains the state-by-state difference: "Blue" states California, Washington, and New York have seen higher job losses, but so have "red" states, like Texas and Tennessee, and even "purple" states, such as Nevada, Michigan, and North Carolina. Technology, media, health care, and finance have been hit hard, while many industries have only seen moderate effects, and a few, such as energy and entertainment, seem to be gaining steam. This suggests that, at least for the moment, there is no holistic picture of the national economy. It certainly explains why individuals seem to have such widely varying views of how things are going.

Challenger Report September 2023

Featured image by Andrey_Popov/Shutterstock.com.