If unemployment increases and there are more layoff announcements, it’s likely that workers won’t readily switch jobs.
The United States government is pouring cold water on the economy and job market to battle inflation. It seems like a masochistic policy, as people must lose their jobs to reduce costs. With such a heavy-handed approach, it’s understandable why Americans are left dazed and confused. For over a year, the U.S. experienced a blazing-hot job market, but now the good times have ended. When there is a sudden and abrupt change, it’s hard for people to process it. Here is what’s happening.
Layoffs and More Layoffs
According to Challenger, Gray & Christmas, a management consulting and outplacement support services firm, job cuts spiked 57% from May 2022.
American companies laid off around 32,517 workers in June.
Due to market conditions, layoffs have already affected the tech sector, cryptocurrency space, and Wall Street. Now, the carnage is creeping toward other areas too.
Some of the Downsizing Made in July
When money was no object, startups flourished. On a nearly daily basis, there would be a new announcement about a billion-dollar unicorn receiving millions in funding from venture capitalists. There was a race to find the best talent before their competition recruited them away.
Once Federal Reserve Bank chair Jerome Powell announced his plans to defeat inflation by raising interest rates, along with the government halting trillion-dollar stimulus packages, the house of cards toppled.
Without access to cheap credit, the startups—devoid of profits and any meaningful revenue—found themselves in a precarious position. To cut costs, they aggressively downsized personnel.
Shortly thereafter, the cryptocurrency sector got crushed. The price of bitcoin and other digital assets went into a freefall. The stock market also plummeted and headed into bear market territory (down over 20% from all-time highs).
The shock and awe made other business sectors worry about whether or not they’d be next in line. The businesses run the gamut from OpenSea, a former high-flying NFT platform, to lingerie, clothing and beauty retailer Victoria’s Secret and the Mom’s Project, a site for working mothers to find jobs.
Rising interest rates are anathema to housing prices. When interest rates rise, so do your mortgage payments. The real estate market boomed during the pandemic and after the U.S. economy opened. People wanted to get out of big, crowded cities, in favor of suburbs and rural areas, as they feared catching or spreading the dreaded virus.
Now that interest rates are heading significantly higher compared to only a few months ago, families are walking away, as their monthly payments are too much to handle with all the other costs going up too. The mortgage units of JPMorgan and Wells Fargo downsized bankers. Fintech loanDepot let go of nearly 5,000 workers representing more than 40% of its workforce.
An online events platform, Hopin, electric vehicle automaker Rivian, foodtechs Sunday and Nextbite all announced layoffs recently. OhioHealth, Alto, Next Insurance, GameStop and Twitter separated people from the payroll.
Goldman Sachs’ Negative Outlook On the Job Market
Goldman Sachs is a top-tier investment bank based in downtown New York City. The over 150-year-old bank has seen its share of ups and downs. Unfortunately, the firm’s research group predicts that the country is heading for a slowdown due to economic contraction.
Goldman chief economist Jan Hatzius said, “We continue to expect that the slowing economy will lead job growth to fall sharply.” The economist contends that unemployment will continue to increase and may hit 4% by 2024.
Hatzius’ rationale is that cooling off the economy to fight inflation will cause a greater probability of a recession and damage the job market. However, the need for workers is so acute that it may reduce some of the pain.
Wall Street doesn’t have factories, warehouses or machinery. Its most significant expense is the compensation paid to its people. To tighten the belt on costs, CNBC reported that Goldman Sachs has slowed down the pace of hiring. There could potentially be end-of-year job cuts as the firm culls the underperformers. The bank also plans to reduce fees that are paid out to vendors, in a measure designed for tougher times ahead.
Are Meta and Amazon Pulling Out of Real Estate to Save Money?
Mark Zuckerberg had already warned his employees to shape up or ship out. TikTok is eating into Meta’s market share. The war chest spent on building the metaverse is currently an asset drain without any end in sight. The embattled social media giant has been freezing new hires and allowing attrition without backfilling the roles to cut costs.
Meta is looking to reduce its previously planned physical office expansion in what looks like a way to conserve valuable resources. Bloomberg reported that Meta may not elect to take 300,000 square feet of space at 770 Broadway and is pumping the brakes on building its new offices in Hudson Yards in New York City.
Similarly, online retailing giant Amazon is curtailing the amount of space it had planned to lease from JPMorgan at the Hudson Yards. Amazon is also placing on hold the building of six new office buildings.
During the pandemic, both companies loaded up on relatively cheap real estate, as there was a mass migration from working in an office to going remote. The recent fashion in work style is hybrid, in which people will come into the office a couple of days a week or only when necessary for a meeting or seeing clients.
The question arises if the halting of adding office space is due to slashing costs. Office buildings in Manhattan and other big cities don’t come cheap. It also seems like a frivolous investment when workers don’t want to go into an office.
Possibly a pivot toward a remote-first policy is in play. This would appease current workers and attract top talent. It would also save a small fortune, which would come in handy if the recession lasts for a long time.
The End Of the Great Resignation?
The Great Resignation was made possible by pent-up demand from shutting down the economy and offering fiscal stimulus programs that inadvertently incentivized people not to work.
Childcare, caregiving, needing time to process what happened and contemplating the next move in life and other matters made people opt out of the job market. Also, immigration slowed to a crawl in the U.S. during the pandemic for health and safety issues. The lack of this dependable flow of workers added to the labor shortage.
In the monthly U.S. jobs reports, the participation rates (people available to work) remain relatively low, especially juxtaposed with the staggering figure of over 11 million jobs available.
As companies desperately needed blue and white-collar workers, a war for talent commenced. Businesses fought to attract, recruit, hire and retain workers. Armed with the knowledge that if they were unhappy, their boss was a jerk or pay was insufficient, they could easily jump ship for a better opportunity. Management had to acquiesce to their demands or risk losing them to a competitor.
If unemployment increases and there are more layoff announcements, it’s likely that workers won’t readily switch jobs. They would be concerned that they’d procure a new role only to learn that their new company is experiencing hardships. This could result in the job offer rescinding or letting go of the last person hired. The fear of the unknown may make many people decide to hunker down and remain where they are until circumstances improve.