Why Tech Layoffs Don’t Reflect the Job Market

The tech sector has made headlines in recent months for announcing significant layoffs, including cuts from major companies like Amazon, Twitter, DoorDash, Carvana, and Netflix. At first glance, these layoffs seem at odds with the strong job market and low unemployment rate in the US. However, upon closer examination, there are a few factors that help explain this disconnect.

Why Tech Layoffs Don’t Reflect the Job Market -  Wall Street Journal

First, it is important to understand that some of these tech sector layoffs may not yet be reflected in the data. For example, the Labor Department's November jobs report only includes layoffs or discharges that occurred in the month, and some companies announced their cuts too late in the month to be included in the report. Additionally, the report only counts the layoffs themselves, not the announcements of layoffs, so it is possible that some of the announced cuts have not yet been implemented.

Another factor that helps explain the disconnect between tech sector layoffs and the overall job market is the decline in the labor-force participation rate. This is the number of people who are actively looking for work or who want to have a job. The labor-force participation rate has historically been low and actually ticked down in November. One reason for this decline is that millions of people left the workforce during the Covid-19 pandemic starting in 2020. This includes roughly 2.6 million people who retired early, as well as others who left the workforce for reasons such as lack of childcare.

Why Tech Layoffs Don’t Reflect the Job Market -  Wall Street Journal

This decline in the labor-force participation rate has created a gap between the number of jobs available and the number of people looking for work. Currently, there are about 1.7 job openings for every person looking for employment. This gap has led to intense competition for workers and has helped to maintain the low unemployment rate.

While the tech sector layoffs are significant and have received a lot of attention, it is important to remember that they are proportionally smaller when compared to the overall number of jobs in the US. In November, approximately 50,000 job cuts were announced in the tech sector, which is a relatively small number when compared to the more than 150 million people who are employed in the US. Additionally, the tech sector is just one part of the economy, and the overall job market is influenced by a variety of factors.

In conclusion, the tech sector layoffs that have made headlines in recent months do not necessarily reflect the overall job market in the US. While these layoffs are significant, they are proportionally smaller when compared to the overall number of jobs in the US and may not yet be fully reflected in the data. The low unemployment rate is partly driven by a gap between the number of jobs and the number of people looking for work, which is influenced by the decline in the labor-force participation rate due to Covid-19 and early retirements. It is important for traders to consider all of these factors when analyzing the direction of the US dollar and making informed trading decisions.