The U.S. labor market, despite its tightness in recent years, is on the verge of experiencing a notable loosening, caution experts.
In states like California, New York, and Washington, companies across various sectors, ranging from tech giants to hospitality and healthcare, are preparing for a significant number of layoffs. Approximately 25,210 employees in these states are slated for layoffs in the coming months, which will inevitably lead to an influx of new job seekers.
According to Ian Shepherdson, chief economist at Pantheon Macroeconomics, this may just be the beginning of a larger trend. Shepherdson noted that both employers and employees are signaling more layoffs on the horizon. He cited increasing state WARN notices for imminent plant closures and mass layoffs, as well as rising Google searches for “claim benefits” as indicators of this trend.
The figure of 25,210 layoffs is derived from Warn Tracker, a platform that monitors upcoming layoffs based on WARN notices. These notices are legal documents filed by companies when they anticipate significant reductions in their workforce.
To grasp the significance of this data, it’s essential to understand the Worker Adjustment and Retraining Notification (WARN) Act. Enacted in 1988, this federal law requires employers to provide advance notice—typically 60 days—of mass layoffs or plant closures to employees and government officials.
The WARN Act stipulates specific thresholds for issuing WARN notices based on the number of employees and their location. WARN notices are required for plant closings and mass layoffs. Plant closings involve job losses for at least 50 full-time employees within 30 days at a single site, while mass layoffs occur when there is a workforce reduction of either 500 or more full-time employees at a single location or job loss for at least 33 percent of the company’s full-time workforce, with at least 50 full-time employees affected at a single site.
It’s important to note that not all layoffs require WARN notices, so the actual number of layoffs in the three states could exceed the reported 25,210.
California is expected to bear the brunt of the impact, with 13,259 workers facing potential layoffs, according to Warn Tracker. The tech industry, which includes Silicon Valley giants like Apple and Google, as well as sectors such as hospitality and healthcare, is anticipated to experience a reduction in workforce in the coming months.
The spectrum of services affected by layoffs, including institutions like the California Institute of Technology (Caltech), which plans to lay off 521 employees on April 7, indicates a broader trend rather than isolated downturns in specific industries.
Ian Shepherdson, commenting on the labor market outlook, suggests that slower gross hiring and increased layoffs are becoming more likely, potentially reducing job growth in the spring. He highlights the possibility of job growth being concentrated in non-cyclical sectors such as healthcare and education, driven primarily by demographic factors.
In Washington state, layoffs are occurring across multiple sectors, affecting 5,994 employees. Companies like Expedia, Walmart, Unity Technologies, and Del Monte Foods illustrate the widespread impact on both digital and tangible aspects of the state’s economy. Notably, RaterLabs, a search engine rating company based in Kirkland, announced a permanent layoff of 3,657 employees effective April 6.
Similarly, New York is experiencing broad-based job cuts, with 5,951 layoffs expected. From the banking sector, represented by Citigroup’s layoff of over 310 employees, to educational institutions like The College of Saint Rose, job losses span various industries across the state. The impending layoffs at UPS (up to 100) and Paramount Global (up to 500) further underscore the widespread nature of workforce reductions.
Reasons Behind Looming Layoffs
Shepherdson identifies several factors contributing to the trend of increasing layoffs, as indicated by data from Warn Tracker.
Firstly, he highlights a decline in gross hiring intentions alongside an uptick in layoffs, suggesting that businesses are becoming more cautious and are more willing to downsize their workforce.
Additionally, Shepherdson points to rising borrowing costs resulting from the Federal Reserve’s rate hike campaign. He notes that the higher interest rates make working capital extremely expensive, putting pressure on companies to maintain current staffing levels.
The tighter credit conditions, driven by shrinking bank lending to commercial and industrial companies, further exacerbate the financial challenges for businesses, making it harder for them to access funds needed for investment and growth.
These financial constraints compel companies to make difficult decisions regarding their workforce.
Shepherdson emphasizes that while the layoffs do not necessarily indicate an imminent recession, they do signify a downshift in job growth.
The current slowdown in job growth could potentially influence the Fed’s monetary policy, leading to rate cuts sooner than initially anticipated.