The job market is strong. So why did layoffs double in January?
The job market remains one of the U.S. economy's main engines, with the nation's unemployment rate near a 50-year low and wages finally pulling ahead of inflation. At the same time, major companies in technology, finance, media and other key sectors have all recently announced sizable job cuts, with layoffs nationwide more than doubling in January from a month earlier.
U.S. companies in January announced more than 82,300 job cuts, a 136% increase from December, according to a new analysis from executive coaching firm Challenger, Gray & Christmas.
That may raise questions about the strength of the labor market as well as concerns among employees about their job security. On Friday, new government data is expected to show that businesses hired about 177,000 workers, with the jobless rate ticking up slightly to 3.8% from 3.7% in December, according to economists polled by FactSet.
Recent layoffs are mostly clustered in a few industries, with experts saying that the job market as a whole remains strong. Here's what is driving the recent spike in layoffs and what it tells us about the state of the economy.
Is the job market in bad shape?
Not according to economists, who point to the nation's relatively low jobless rate and ongoing hiring.
Even so, the job market has definitely cooled from the hiring frenzy that occurred in 2021 and 2022. During those years, businesses snapped up workers as the economy began to recover from the initial shock of the pandemic, leading to a job market so tight it spurred millions of Americans to switch jobs in search of better pay and working conditions — a trend dubbed the "Great Resignation."
Americans may be comparing the unusually strong job market in those years with today's cooler hiring. The U.S. economy added 4.8 million jobs in 2022, with that pace slowing to 2.7 million new jobs in 2023 — the latter is still higher than hiring in years prior to the pandemic, according to JPMorgan Wealth Management.
"[L]abor market conditions have loosened, but the job market remains healthy," analysts with Oxford Economics said in a report this week.
One encouraging sign: 57% of small businesses — which account for roughly 46% of private-sector employees — plan to add jobs this year, according to a new Goldman Sachs survey of 1,459 small business owners taken earlier this month. Three-quarters also expressed optimism about their financial prospects this year, the investment bank found.
How do the 2024 layoffs compare with prior years?
Excluding January 2023, the January layoffs this year represent the highest number of job cuts announced in the first month of the year since January 2009, according to Challenger, Gray & Christmas.
At the time, the U.S. economy was mired in the Great Recession, spurring businesses to cut more than 241,000 jobs that month.
Who is getting laid off in 2024?
January's job cuts are mostly among financial and tech businesses, Challenger, Gray & Christmas noted.
Financial firms announced the largest number of layoffs last month, at more than 23,200, which represents the highest number of job cuts for the industry since September 2018, when more than 27,000 jobs were cut. One of the biggest layoff announcements in the sector came from Citigroup, which said it plans to cut 20,000 jobs.
Tech employees suffered the second-largest number of layoffs, with almost 16,000 people losing their jobs, according to the analysis. Alphabet-owned Google, Microsoft and Salesforce were among the big tech companies slashing thousands of jobs last month.
Media businesses also increased their job cuts, although the number of layoffs is relatively small. News businesses cut a total of 528 workers in January, a 1,660% increase from December, Challenger, Gray & Christmas noted.
Why are companies cutting workers?
Some companies are seeking to cut costs amid the rise in interest rates, while others are shedding workers after a hiring binge during the pandemic. Other businesses are refocusing to invest in artificial intelligence, which has prompted job cuts in some of their non-AI business units.
"[T]hese layoffs are also driven by broader economic trends and a strategic shift towards increased automation and AI adoption in various sectors, though in most cases, companies point to cost-cutting as the main driver for layoffs," said Andrew Challenger, senior vice president of Challenger, Gray & Christmas, in a statement.
Will there be more layoffs in 2024?
That is likely given the push by many businesses to trim costs. The jobless rate could rise to 4.1% this year, according to a recent forecast from Oxford Economics.
Federal Reserve Chair Jerome Powell said this week that the central bank wants to see the labor market cool without causing a jump in joblessness — part of a so-called soft landing, or a cooling of inflation and economic growth, while avoiding a recession.
"We're hoping to see ... a continuation of what we have seen, a labor market coming into better balance without a significant increase in unemployment," Powell said.
