(NEXSTAR) – Every week, it seems a major company announces a round of layoffs, leaving thousands of people suddenly without jobs. As we see it happen again and again, we’d expect the pool of jobless Americans to grow.
Yet, in recent weeks, the number of unemployment claims has actually been dropping.
Applications for jobless aid in the U.S. for the week ending Feb. 11 fell by 1,000 – from 195,000 to 194,000 – the Labor Department reported. It was the fifth straight week that claims were under 200,000.
Jobless claims generally serve as a proxy for layoffs, so why isn’t that happening now?
For starters, there are still way more jobs than unemployed people – about two openings per jobless person, according to the Bureau of Labor Statistics.
Plus, recent layoffs have been predominantly in the tech sector, Jake Clopton, economist founder of commercial mortgage broker Clopton Capital, pointed out.
“Tech is the most sensitive as far as all these industries to rising interest rates,” Clopton said. “They need to raise capital to fund their growth and that’s why they’re more sensitive to rates than the vast majority of other sectors of the economy. And they are usually the ones that get hit first.”
Earlier this month, the Fed raised its main lending rate by 25 basis points, its eighth rate hike in less than a year. The central bank’s benchmark rate is now in a range of 4.5% to 4.75%, its highest level in 15 years. Chair Jerome Powell appeared to suggest that he foresees two additional quarter-point rate hikes.
The Fed raising interest rates has been helping to curb inflation, and so far hasn’t hit the resilient U.S. job market. Consumer spending, another indicator of the economy’s health, also remains high. Inflation has been going down, slowly but steadily.
“At the end of the day, what all this stuff recently really did was reaffirm for people that the Fed is going to continue to raise rates until they affect the labor market,” said Clopton. “Because at the end of the day, that’s what they’re really trying to solve is wage inflation…that two job openings for every unemployed person that’s driving up labor costs.”
Even as IBM, Microsoft, Amazon, Salesforce, Facebook parent Meta, Twitter and DoorDash have all announced layoffs in recent months, the government reported that employers overall added a better-than-expected 517,000 jobs in January. Analysts were expecting job gains of around 185,000.
The unemployment rate dipped to 3.4%, the lowest level since 1969.
There are other reasons we might be seeing layoffs in 2023, despite our economy looking nothing like the last few recessions. Some of it could be a post-pandemic correction, the Atlantic postulated, as companies who boomed during lockdowns (like Peloton) readjust to consumer needs and habits in a reopened world.
Another theory, put forward by Stanford Graduate School of Business Professor Jeffrey Pfeffer, is that layoffs are a “social contagion.”
“If you look for reasons for why companies do layoffs, the reason is that everybody else is doing it,” he said in an interview with the school’s news publication.
As execs look around nervously at an uncertain economy, they may get swept away with the trend, Pfeffer explained. “I’ve had people say to me that they know layoffs are harmful to company well-being, let alone the well-being of employees, and don’t accomplish much, but everybody is doing layoffs, and their board is asking why they aren’t doing layoffs also.”
The Associated Press contributed to this report.