Mar 14, 2023
Making sense of the labor market
As the economy deals with many uncertainties and a potential recession, reports abound of mass layoffs. For instance, we’ve already heard of IBM shedding 3,900 workers, PayPal cutting some 2,000 jobs and FedEx reducing its workforce by 10%, to name just a few.1 This alone might seem to portend a deteriorating economy. Yet, according to the Bureau of Labor Statistics, the economy actually added 517,000 jobs in the month of January 2023. Job growth had been slowing since mid-2022, but January’s employment numbers came in much higher than the 187,000 expected.2
What does this mean for the job market?
As the list of large companies laying off workers continues to grow, we believe there certainly could be reasons to be concerned. However, some of these layoffs are not as bad as they may seem on the surface. Google’s parent company, Alphabet, announced plans to reduce its workforce by 6%, equivalent to 12,000 positions.3 Yet, this reduction should be weighed against the fact that the company had increased its workforce significantly during the pandemic.4 While Amazon is laying off more than 18,000 workers,5 the company had drastically increased its headcount during the pandemic.6 Similarly, Microsoft is laying off 10,000 employees, less than 5% of its workforce, after having grown its workforce aggressively in recent years amid higher demand, particularly as a result of remote working arrangements stemming from the pandemic.7
In addition, some companies are cutting workers in one area of their business while hiring in another. Boeing is cutting finance and human resource jobs but adding positions in engineering and manufacturing.8 Likewise, BNY Mellon is cutting 3% of its workforce this year, the majority of which are in management, while still adding junior staff members and jobs in technology and operations.9
How does this affect inflation?
Here’s the conundrum of job growth. While we think rising employment is certainly a positive economic signal, it can also be inflationary. The payroll increase may, in turn, push consumer spending and wages higher, adding even more pressure to inflation.
Wage growth has been high but is showing signs of slowing. Production and non-supervisory workers saw their paychecks most recently grow by 5.1%, down from a peak of 5.6% last March and the average hourly earnings for the private sector grew 4.4%, down from 4.8% in December.10
What are the Federal Reserve’s next moves?
The Federal Reserve Board has been aggressively raising interest rates from near zero at the beginning of 2022 to the current Federal Funds rate of 4.5%–4.75%,11 in an attempt to ease inflation and cool down the hot labor market. With the job market still strong and wage growth coming in higher than the Federal Reserve would like to see, we can likely expect it to continue raising interest rates. As Fed Chairman Jerome Powell recently stated, “We’re going to need to be patient.”12 In the meantime, it appears patience is being rewarded more than it was a year ago. If you look only at bond interest rates, fixed income investors are getting paid more from these investments than they have in more than a decade.13
1 https://www.forbes.com/sites/brianbushard/2023/02/24/2023-layoff-tracker-ericsson-cutting-8500-employees/?sh=3f6f0e684203
2 https://www.forbes.com/sites/jonathanponciano/2023/02/03/jobs-report-january/?sh=30f537215598
3 https://www.bloomberg.com/news/articles/2023-01-20/google-cutting-12-000-jobs-in-6-slash-to-global-workforce#xj4y7vzkg
4 https://www.washingtonpost.com/business/big-tech-binged-on-workers-during-covid-now-the-purge/2023/01/26/cb8a4c70-9d6a-11ed-93e0-38551e88239c_story.html
5 https://www.cnbc.com/2023/01/04/amazon-says-it-will-cut-over-18000-jobs-more-than-initially-planned.html
6 https://www.cnbc.com/2021/09/01/amazon-to-hire-more-than-40000-workers-in-its-latest-job-spree.html
7 https://www.cnbc.com/2023/01/18/microsoft-is-laying-off-10000-employees.html
8 https://www.cnn.com/2023/02/07/business/boeing-job-cuts/index.html
9 https://www.bankingdive.com/news/bny-mellon-1500-layoffs-targeting-management-crypto-digital-assets/640409/
10 https://www.frbsf.org/economic-research/publications/fedviews/2023/march/march-9-2023/
11 https://www.federalreserve.gov/monetarypolicy/openmarket.htm
12 https://www.wsj.com/articles/feds-jerome-powell-to-address-economic-outlook-with-hiring-surge-in-spotlight-11675781503
13 https://www.usatoday.com/money/blueprint/investing/current-i-bonds-rates/
ABOUT THE AUTHOR
Tina Barrile
Tina is a Wealth Manager and member of the Investment Committee at BDF. With almost two decades of investment and financial planning experience, her holistic and personalized approach gives clients confidence and comfort with their finances. Tina enjoys working with individuals going through divorce, and specializes in advising blended families. She holds the Chartered Financial Analyst (CFA) designation and is a CERTIFIED FINANCIAL PLANNER professional.
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