US Layoffs, Hiring Freezes Are Tip of Labor Market Slowdown

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Many thought the US labor market was weak. It is not going to last.

Companies have announced tens of thousands of job cuts and plans to freeze hiring in the last few weeks. Technology, cryptocurrencies and real estate firms have laid off at least 37,000 workers since May, according to TrueUp. As the housing market cools, banks and brokerages are cutting back on staff.

Slowing consumer demand, 40-year high inflation and the Federal Reserve's interest rate hikes are affecting other sectors. Century Aluminum said it was laying off about 600 workers.

More is on the way, according to economic data. The last three months have seen a decline in manufacturing overtime hours. The four-week average of unemployment claims rose to its highest level since January as more people filed for benefits. Wage growth is not growing as fast as it used to.

There is a lot of anecdotal evidence. Bob Schwartz is an economist at Oxford Economics. The Fed is speeding the process because we are at a tipping point.

The question for economists is how quickly the labor market will decline.

At its June meeting, the Fed hiked rates by 75 basis points, the most since 1994, and Chairman Powell is looking at at least a 50-basis points increase at the next meeting.

Economists are calling for a recession as consumer and corporate lending demand weaken. Powell admitted this week that there is a chance of a recession.

Firings have mostly been limited to industries with high interest rates. Home sales were at their highest in more than a decade because of low rates and fiscalStimulus. Mortgage rates have gone up since 2008, making it harder to buy. They don't need all those people.

Higher borrowing costs are a problem for tech firms. Many of the companies that are cutting jobs said they hired too many workers to meet demand when the economy started to recover. Coinbase Global Inc., which is cutting more than 1000 staff, has been hit by a severe sell off this month.

Hiring Freeze

Other sectors are being affected by cost-cutting measures

One nonfinancial-service firm told theRichmond Fed that its plans for hiring and spending are on hold. The Kansas City Fed was told by another service company that it instituted a hiring freeze after sales fell.

The Fed's interest rate hikes are designed to slow down demand, and that includes demand for workers. The rate is expected to jump to 5.9% by the end of the year, according to a projection by a Japanese investment bank. The level of June 2021.

The labor market is tight In May, the unemployment rate was historically low, and payrolls rose by over 350,000. Excluding inflation wage growth is historically high. New job postings are still higher than before the Pandemic, despite a slight decline in postings recently.

Traditional indicators don't always lag. The job openings tracked by the government fell in April. May numbers won't be out until July.

Troy Ludtka, senior US economist at Natixis North America, said that the labor market is strong but it is going to get worse soon. The unemployment rate is expected to reach at least 5% by the start of the next decade.

The burst of growth we saw a year ago is what is causing the current tightness. The labor market is going to slow as the economy slows.