Cracks Forming in US Labor Market as Job Losses Increase in Tech, Building Sectors

A 'now hiring' sign in a Manhattan store in New York on May 6, 2022. (Spencer Platt/Getty Images)

Cracks are beginning to form in the labor market, despite a robust March jobs report, leading market analysts to assert that the recent banking turmoil may be a contributing factor to easing employment growth in coming months.

Mike Fratantoni, chief economist of the Mortgage Bankers Association (MBA), predicted in a research note that the unemployment rate will rise to about 5 percent this year.

He noted that the job market is “beginning to flag” several other “lagging indicators of a slowing economic activity and tightening credit” environment.

A wave of recent labor data might support this expectation.

For the week that ended on April 8, the number of Americans filing for unemployment benefits surged to 239,000, topping market estimates of 232,000, according to the Department of Labor.

The four-week moving average, which eliminates week-to-week volatility, climbed to 240,000.

Continuing jobless claims, a metric that measures out-of-work individuals who have been receiving jobless benefits for a long time, remained above 1.8 million for the fourth consecutive week.

Last week, data confirmed that U.S.-based employers announced nearly 90,000 layoffs in March, up 319 percent from the same time a year ago.

Because many of these job cuts have been concentrated in the technology sector, experts argue that only pockets of the labor market are weakening.

Indeed, so far this year, tech firms have announced more than 102,000 job cuts, up from just 267 layoffs in the first quarter of 2022, representing an astounding 38,487 percent increase.

In the first few months of 2023, Microsoft stated that it would be cutting 10,000 jobs, Amazon confirmed that 17,000 positions were being eliminated, Salesforce trimmed 8,500 employees, Dell slashed 6,650 workers, and PayPal was getting rid of 2,000 staff members.

Upward Move in Lost Jobs

But Bureau of Labor Statistics (BLS) data show that there has been a declining trend in new jobs or an upward trajectory in lost jobs in multiple sectors.

In March 2022, the manufacturing sector created 62,000 new jobs, but the industry lost 1,000 positions a year later.

Likewise, there were 15,000 new positions in the finance space in March 2022, but the arena shed 1,000 people last month.

The same patterns are seen throughout the national economy—such as construction, wholesale trade, information, professional and business services, transportation, and warehousing.

The number of job openings fell below 10 million in February for the first time since May 2021.

Nearly all sectors listed in the Job Openings and Labor Turnover (JOLT) report recorded a reduction in new jobs from the previous year.

A "now hiring" sign is displayed in a window in Manhattan on July 28, 2022. (Spencer Platt/Getty Images)

“Certain job types are still seeing higher levels of unemployment currently. For instance, construction jobs have very high unemployment numbers right now due to building activity slowdown, with higher interest rates lowering demand for new individual housing,” Jill Gonzalez, a WalletHub analyst, said in a note.

“Farming, fishing, and forestry jobs are also seeing high unemployment, which has more to do with technological advances and less about the current economy or pandemic recovery.”

The ADP National Employment Report highlighted that small and medium-sized businesses, or SMBs, led payroll growth in March.

However, a Morning Consult study found that SMBs are beginning to experience a hiring slowdown in the aftermath of the Silicon Valley Bank and Signature Bank failures.

With tighter credit conditions coming, SMBs plan to slow their hiring as they grapple with a diverse array of challenging market developments.

“In light of SMBs’ elevated input costs, diminishing pricing power, and tighter financial conditions, SMB investment, hiring, and profitability are all likely to suffer over the next three months,” Morning Consult economists wrote.

“Larger SMBs are most exposed to tighter financial conditions, while smaller SMBs are more likely to struggle to raise prices to maintain their profit margins.”

In its March update to the Summary of Economic Projections, the Fed forecast that the unemployment rate would rise to as high as 4.6 percent in 2024 and 2025.

While all the focus is on employers, what about workers and their attitudes toward the present employment landscape?

State of US Workers

Average hourly earnings gains have gradually eased since hitting a peak of 5.9 percent in March 2022, sliding to 4.2 percent last month. This represented the smallest year-over-year increase since June 2021.

But inflation has eaten at workers’ paychecks.

Real average hourly earnings (inflation-adjusted) tumbled by 0.7 percent year-over-year in March.

The change in real average hourly earnings—combined with a drop of 0.9 percent in the average workweek—resulted in a 1.6 percent decline in real average weekly earnings.

Since the labor market continues to be tight—close to two open positions for every unemployed job seeker—workers are confident that they can find employment opportunities, including in other industries, according to a survey conducted by talent platform Fiverr.

The report found that 77 percent of U.S. workers say they plan to explore a new industry. Others intend to pursue freelance work while looking for a new job.

Freelancing Options

“The economic downturn, particularly in the tech sector, and the associated wave of layoffs has initiated a talent migration,” said Micha Kaufman, CEO of Fiverr.

“Skilled workers are now reconsidering their career priorities and exploring alternative work opportunities.

“As we have observed in the evolving community on Fiverr, freelancing has proven to be an appealing option for workers affected by layoffs who are interested in exercising more control over their careers.”

But now that the Federal Reserve is anticipating a recession later this year, how will this impact the job hunt and broader labor market conditions?

“A potential recession would negatively affect unemployment significantly. Losing a job is never good, but when you combine it with such high inflation it can really become disastrous,” Gonzalez said.

“Even Americans with jobs right now are struggling to afford essentials like food and gas. If those numbers would climb while more people become unemployed, we might see an economy in deep recession.”

The New York Fed Bank’s Survey of Consumer Expectations (SCE) reported that close to 41 percent expect a higher jobless rate next year, but nearly 58 percent say they can find a job in the next three months if they lost their job today.

People line up hoping to find assistance with their unemployment claim, in a file photo. (Bryan Woolston/Reuters)

A new Harris Poll-Justworks survey found that 42 percent of Americans are worried about losing their jobs in a potential recession, and nearly half (47 percent) report adjusting their behavior at work to avoid being laid off.

Thirty-five percent are even working longer hours because of the current economic climate.

Still, despite increasing fears of unemployment, the quiet quitting trend—performing only the minimum requirements of your job—persists, led by Generation Z workers, according to a Morning Consult study.

Workers are being proactive by continuing to search for employment opportunities before it is too late.

A Bankrate survey  found that half of U.S. workers “are likely to look for new employment in the next 12 months.”

“The future trajectory of the economy, including whether job losses substantially accelerate as many expect, will help dictate how many workers look for a change or will want to stay put,” said Mark Hamrick, Bankrate senior economic analyst.