January 2024 witnessed a staggering 136% increase in job cuts compared to December, with U.S. companies announcing over 82,300 layoffs.
Labor Market Lows
Unemployment in the U.S. has reached historic lows, so why are so many corporations still cutting jobs?
Almost Record-Breaking Layoffs
This huge increase in layoffs is the second-largest total of job losses the country has seen in January since 2009.
Divergent Indicators
While layoffs surge, economists argue that the job market itself is flourishing, pointing to a relatively low unemployment rate and consistent hiring.
“Waves” of Layoffs in January
One expert, Andy Challenger, noted, “Waves of layoff announcements hit U.S.-based companies in January after a quiet fourth quarter.
AI Among Reasons for Job Cuts
Challenger suggested the potential reasons for the January job cuts included AI and cost-cutting in “various sectors.”
AI Impacting Several Sectors
“The impact of rapidly advancing artificial intelligence adoption is beginning to be felt from a jobs perspective, particularly in media and tech,” noted Challenger.
Financial and Tech Sectors Impacted
Financial and tech industries dominated January’s layoffs, with financial firms witnessing the highest number of job cuts since September 2018.
Citigroup’s Crisis
Financial firm Citigroup contributed massively to this, as it announced it would be cutting 20,000 jobs.
Technology Sector Layoffs
Tech employees are feeling the strain with 16,000 job cuts, featuring major tech companies such as Google, Microsoft, and Salesforce implementing workforce reductions.
“Social Contagion” a Factor
Stanford Graduate School of Business Professor Jeffrey Pfeffer explained that recent layoffs in the tech sector are primarily a result of “social contagion.”
Domino Effect
Social Contagion, Pfeffer explained, is a domino effect that happens when some companies begin to cut jobs, resulting in others following suit.
Tragic Risk of Layoffs
“Layoffs don’t work to improve company performance,” noted Pfeffer before arguing that they can also increase the odds of suicide by two times or more.
Not All Doom and Gloom
A Goldman Sachs survey indicated that 57% of small businesses plan to add jobs in 2024, showing that economists are looking positive for the year ahead despite layoffs.
Moderate Hiring Pace
Despite optimism, the rising hiring of 2022 has slowed, with 2.7 million new jobs in 2023.
Job Market Significantly Slowed
This is a notable decline from the 4.8 million jobs added in the preceding year but still exceeding pre-pandemic levels.
Media Industry Layoffs
Media businesses contribute to the surge in job cuts, experiencing a 1,660% increase in January, with news companies alone cutting 528 jobs.
Recession Comparisons
Critics are comparing the January layoffs to the Great Recession in 2009 when over 241,000 jobs were cut due to the recession crisis.
Future Layoff Predictions
Anticipating a cost-trimming trend, it is likely that layoffs will persist in 2024, potentially leading to a rise in the jobless rate, forecasted to reach 4.1% by Oxford Economics.
Federal Reserve’s Stance
Federal Reserve Chair Jerome Powell spoke of the central bank’s desire for a “soft landing” in the labor market.
The Future of the Job Market
“We’re hoping to see … a continuation of what we have seen, a labor market coming into better balance without a significant increase in unemployment,” said Powell.
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The content of this article is for informational purposes only and does not constitute or replace professional financial advice.
