Layoff announcements continue to pile up across the US economy.
Over the last 24 hours alone, Disney announced plans to eliminate 7,000 positions, reports indicated JPMorgan cut hundreds of mortgage-related jobs in recent days and the CEO of GitLab on Thursday cited “tough” macro conditions for a decision to reduce headcount by 7%.
My cynical take from “What’s Really Behind The Tech Layoffs?” aside, many of these moves do generally make sense, both in the context of a hopelessly ambiguous economic outlook affecting virtually all businesses and, in some cases, from an idiosyncratic, company-specific perspective.
The high profile return of Bob Iger to Disney amid what some investors (including Trian) view as poor operational performance is an example of the latter, while a quick look at mortgage origination volume at JPMorgan tells you pretty much everything you need to know about the rapidly evolving macro backdrop and why it poses challenges to companies attempting to stay abreast.
The chart shows a 60% decline from 2021 to 2022, if you’re keeping score at home. Suffice to say the boom’s over, even if falling mortgage rates manage to revive housing activity after an abysmal 2022.
The question continues to be when (or maybe “if” is more apt) the seemingly never-ending deluge of announced job cuts starts to show up in headline employment aggregates — or even just in weekly claims figures. Initial claims rose last week, data out Thursday showed, but they remained historically subdued. (Incidentally, there’s an interesting disparity between headline payrolls and full-time employment for those inclined to canary spotting+.)
That question may not be answered for several quarters, or it may linger unanswered in perpetuity because, as Jerome Powell suggested earlier this week, the US economy might be staring at an endemic, structural shortage of workers. If that’s the case, it could mean labor market resilience is a feature, not a bug, of the post-pandemic American jobscape.
There are two sides to this discussion. On one hand, lots of job openings is a good problem to have if layoffs are piling up — assuming any kind of matching efficiency, the implication is that the newly jobless can find employment quickly, even if it’s not necessarily the kind of work they want. Recent research from Goldman suggests job-finding rates are generally higher than average across most industries.
On the other hand, if the disconnect between openings and available workers is so large that the only way to close the gap is via an engineered collapse in demand, that’s a problem, because it effectively means choosing between inflation (via stubbornly elevated wage growth) or a deep, dark recession.
As Goldman’s Ronnie Walker pointed out in a new note, “companies that announced a large number of layoffs have simultaneously slashed job openings dramatically.”
The point, in case it isn’t obvious, is that large companies have demonstrated a tendency to reduce openings either before laying off existing workers, or in any case to a far greater extent.
That argues in favor of a soft landing, and at least suggests the current yawning disparity between openings and hires (as evidenced by the JOLTS figures, for example) will eventually correct, even if the pandemic leaves an indelible mark on the relevant data series.
One concern, though, is that the current rash of layoffs pales in comparison to the hiring bonanza witnessed among many large firms during the pandemic. 
The histogram shows… well, it shows exactly what the chart header says. 15% of the S&P increased headcount by 40% or more during the pandemic. Around 7% of the index grew payrolls by 70%.
Needless to say, that raises questions about the scope of any layoffs that might still be in the pipeline. Daily headlines documenting the latest headcount reductions only serve to heighten such concerns.
Taken together, this remains a very difficult puzzle. Goldman’s Walker attempted to sum things up. The good news, he said, is that “similar to the rebalancing seen so far in the broader labor market, even these companies that have announced [cuts] have reduced their total demand for workers overwhelmingly by reducing job openings rather than by conducting layoffs,” he said.
Then, he delivered the (potential) bad news: “There could be additional layoff announcements yet to come as only one-fifth of [large companies which grew headcount by 40% or more since the start of the pandemic] have announced layoffs so far.”
There are several things going on. First many employers are hoarding labor since it was until very recently difficult to hire. Second, job cut announcements often take up to a year for actual severance to take place. And as you point out, many employees cut can go out and find a new position fairly quickly as there are still many openings, at least for now. So you have a lot of churn, which is not really that bad a situation to find for an economy. The problem is that as demand for domestic goods slow (not tech- everything else) and as time goes on, opening start to decline and layoffs start to hit in force and more job cuts come down the pike. It is at that inflection point that unemployment really goes up and one finds a self reinforcing loop (not a good loop). We are not there yet and we might not get there if the timing works out for the economy. That would be a so-called soft landing. It would be very lucky. What is more likely to happen is that we get a sudden stop from a credit or maybe another exogenous shock. That gets you a “hard landing”. Even more worrisome at that point is that with a GOP House, you will not likely see fiscal stimulus. We will be back to the Fed to cut rates, and frankly I am not sure that at this point cutting rates and ending QT will be enough to prod things along quickly. We could be stuck in subpar growth or recession for awhile. That is my fear.
Your brief allusion to the disparity between headline payrolls and full-time employment is worth noting.
Yesterday there was a piece on Marketwatch (“No wonder Powell didn’t commit to extra hikes”). In almost a throw-away at the end, they noted that “The household report also suggests that nearly all the jobs created over the last year are part time.”
If that is correct, it would explain a lot, no?
Am I the only one who thinks this could be significant? Or is it fake news?
Anecdotally that makes sense. Remember how you couldn’t get a damn ice cream cone or chicken sandwich last summer and every service industry business was hiring?
Completely off subject, but love the Edward Hopper-esque cover art.
The Edward Hopper, as well as other artists, paintings in the collection at the Art Institute of Chicago were a highlight of the years I lived in Chicago.
@DoubleB I assume you’ve seen my tribute: https://heisenbergreport.com/shop-heisenberg/
Also, this is good: https://www.newyorker.com/culture/cultural-comment/the-delight-of-edward-hoppers-solitude
There are layoffs, but also 1.1M jobs added over past 3months, with hiring ramping up in January. This is not surprising with rent moratoriums scheduled to expire in March, 2023. Between that and the lack of any fiscal stimulus payments- it is not surprising that people are now looking to go back to work. The US workers in the lowest 20% of the income bracket earn, on average, about $4,900 of earned income and receive about $45,000 of transfer payments.
A relatively small federal policy shift can easily result in a meaningful increase or decrease to the work force, especially for lower paying, unskilled service jobs.
Layoff list here https://intellizence.com/insights/layoff-downsizing/major-companies-that-announced-mass-layoffs/
Is that a Dall-E-2 graphic at the top?