This hot labor market is cooler – but it will take a lot to actually call it “cool”.
On Thursday, the Department of Labor released the latest jobless claims data, a proxy for layoffs. For the week ending April 15, initial claims increased by a seasonally adjusted 5,000 to 245,000. This is still a very low level historically, which speaks to the resilience of the hot labor market.
Recent revisions added some fodder to the idea of a cooling market, but these modest increases are not showing a rapidly cooling labor market. Instead, they are highlighting the continued strength and resilience of the labor market. Yes, initial claims have risen above 2019 levels – but the labor market was tight even before the pandemic shake-up.
Even as the labor market shows modest signs of cooling in other data points (such as moderating wage growth, and a slowing pace of hiring), companies, for the most part, have not responded to the Fed’s tightening cycle with layoffs. Beyond the tech and finance industry, which dominated headlines, layoffs are still rare.
The resilience of these sectors may indicate that the fear of once more having to rebuild a workforce outweigh the fears of a recession. After undergoing huge layoffs in 2020, companies across sectors struggled to return to full worker capacity among intense competition for labor and worker shortages. Uninterested in repeating those mistakes, companies may instead engage in labor hoarding, even as economic futures become more uncertain.
Additionally, demand is still hot within sectors like healthcare and leisure and hospitality – these workforces look set to continue growing, even as other industries slow.
Layoff announcements, tracked by Challenger, Gray & Christmas, Inc. are moving sideways after an increase at the end of 2022. Many of these announcements (38%) remain in the tech sector, which is perhaps just a correction after over hiring during a time of historically low interest rates. Recessionary fears are also impacting the financial sector, though sometimes layoff announcements don’t actually mean big workforce cuts.
The U.S. labor market remains strong, though it is softening ever so slightly. Employers may be wary of repeating mistakes made at the onset of the most recent recession, creating an interesting dilemma for the Fed, which remains set on cooling the labor market.