Global layoffs slow in sign cooling economy won't mean recession

Photo: TBS

The wave of layoffs that has dominated headlines around the world is laying low — or at least, lower.

About 51,000 jobs were slashed worldwide in June, the lowest number since December, according to a Bloomberg analysis of job-cut announcements across almost 1,300 companies. Last month's tally, which dropped 25% from May, marked the fourth decline in five months.

Companies also appear to be downsizing less aggressively. The median size of layoffs in the second quarter was about 8% of a company's total workforce, down from roughly 10% in the previous two periods.

Coupled with reports of still-robust job growth in the US, where employers added close to 210,000 jobs last month, the data suggest central bankers' dreams may be coming true: a gradual cooling of the economy that reins in inflation without triggering a global recession. But economists are watching closely to see whether this labor market strength holds out — or if more than a year of interest-rate hikes will finally catch up with employers' and consumers' seemingly insatiable demand.

The increase in layoffs over the past year comes after a period of lower-than-average layoffs in 2021 and early 2022 as some businesses went on hiring binges while others grappled with severe labor shortages. "Inevitably, when the labor market cooled from where we were a year ago, we were going to see an increase in layoffs," said Andrew Challenger, senior vice president of staffing firm Challenger, Gray & Christmas Inc. "The real question is, is it going to go further than that in terms of a real recession."

The tech sector, which has led the way with more than 200,000 job cuts since Bloomberg began tracking in October, saw a steep drop in announcements last month — down almost 70% from May. That may be in part because most companies have already unwound much of the over-hiring they did during the pandemic. With so much of the population stuck at home, tech companies saw a huge spike in demand — and opportunities for growth. "They were on hiring tears never seen," Challenger said.

Despite the eye-popping headline numbers — all told, some 60,000 workers in total were axed at Amazon, Meta and Alphabet since October — the data suggest many laid-off tech workers have been able to find new jobs relatively quickly. While the job market for software engineers may not be quite as frictionless as it once was, smaller startups and companies in more traditional industries like banking and auto manufacturing have capitalized on the opportunity to snag top talent. The rapid reabsorption of laid-off employees back into the workforce may be one factor contributing to the record-low unemployment rate.

And even amid belt-tightening and talk of a "year of efficiency," the release of ChatGPT in November has fueled keen demand for all things artificial intelligence, boosting tech stocks and buoying demand for workers — signs that the labor market in Silicon Valley isn't as dire as the ominous layoff headlines might suggest.

Outside the tech world, another major pandemic-era storyline that's still playing out is the shift from consumers spending money on goods — like new TVs and couches — back to services, like traveling and Taylor Swift concerts.

Second only to the tech sector, consumer discretionary companies cut more than 160,000 jobs since the start of October. One such firm, Swedish automotive safety supplier Autoliv, took the top spot among businesses announcing cuts in June, reporting plans to eliminate some 8,000 roles. This downsizing comes as factories from the US to Japan slow production as orders stall and rising interest rates make it more expensive to invest in high-cost equipment. Industrial firms also let many workers go, slashing close to 80,000 positions.

Of all the mass layoffs Bloomberg has tracked, however, the largest by far was the estimated 35,000 jobs set to be wiped out by UBS Group AG's emergency takeover of Credit Suisse Group AG. The merger came swiftly amid a crisis of confidence in scandal-plagued Credit Suisse, intensified by the collapse of Silicon Valley Bank. Other major Wall Street banks have made several rounds of layoffs, shedding some of the headcount acquired during the hiring boom of the past couple of years as dealmaking slows in the face of higher interest rates and economic uncertainty. Just over 100,000 jobs have been lost globally across the finance sector since October, according to Bloomberg's analysis.

Though inflation has shown signs of easing, it may prove stickier than economists hope as wage growth for US workers came in stronger than expected last month. And as central bankers continue to hike interest rates, the risk climbs that higher borrowing costs will lead to lower investment and slower growth.

Amid the sometimes discordant data, the question remains: whether the global economy will fall into recession or will surprise the pessimists and avoid a contraction. In light of the surprising resilience of economic and market data, some forecasters, like Bank of America Corp. and Citigroup Inc., have pushed back projections for a downturn from this year to sometime in 2024.

Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.