For much of 2022, consumers and economists alike have talked about a coming recession. While some people always seem to be afraid of a recession, even in good times, there are certain indicators in 2022 that do indeed suggest that an economic slowdown may lie ahead. As inflation has run hot throughout the year, the Federal Reserve has embarked on an aggressive campaign of raising interest rates in an effort to get it under control. As “getting inflation under control” can be translated to “slowing down the economy,” it’s entirely logical that a recession may be lurking. Anecdotal evidence in the tech world is also suggesting a slowdown, as both Twitter and Amazon have recently announced large layoffs. But are these isolated cases, or could layoffs spread to the greater economy? Here’s what experts are saying about whether layoffs will get better or worse in 2023.
Labor Market Remains Tight
Although there are signs that the economy may be weakening, the truth of the matter is that for the time being at least, the labor market remains strong. Unemployment remains low, and even though analysts at many firms see it rising, Bank of America, for example, only sees an unemployment rate of 5.5% in 2023. This is far below the rates seen in previous recessions, such as the 10%-plus in the Great Recession and the 15% rate at the onset of the coronavirus pandemic in 2020. What this means for workers is that the labor market is still favorable, even if it weakens slightly. The era when workers can quit their jobs knowing they will be welcomed to a new job with bonuses and extra perks may be slowly slipping away, but that’s a far cry from the arrival of mass layoffs.
The Economy Is Still Growing
A recession is strictly defined as two consecutive quarters of economic contraction. In that sense, some economists say that the U.S. economy already experienced its recession, as the first two quarters of 2022 showed contractions of 1.6% and 0.6%, respectively. But in the third quarter, growth turned back positive, as GDP rose by 2.6%. Considering this reversal came in the teeth of the highest inflation in over 40 years and during aggressive Fed rate hikes, this shows that the economy is incredibly resilient. If the economy continues to thrive — or even if it remains flat for a few quarters — there shouldn’t be mass layoffs in 2023.
Rate Hikes May Be Closer to the End Than the Beginning
One of the most encouraging factors for the labor market is that inflation is starting to roll over. After peaking at 9.1% in June, the most recent CPI readings are closer to 7.7%. Goldman Sachs expects the core personal expenditure rate, or CPE — which is the Fed’s preferred inflation gauge — to drop all the way to 2.9% by year-end 2023, down from about 5.1% currently. This is fuel for a growing economy, not a contracting one, so if that prediction comes true, it should provide support for the labor market.
Risks for the Labor Market
Although trends may seem positive for the labor market right now, the economy can turn on a dime at any time. If inflation continues to persist, forcing the Fed to raise rates longer or more aggressively than anticipated, there are a number of potentially dire outcomes for the economy. A traditional recession is one, but stagflation is another, in which inflation continues to rise at the same time the economy stalls out. Neither of those scenarios is a good one for the labor market. Layoffs are likely to increase in 2023 if either of those outcomes occurs.
The Bottom Line
Predicting the future of the labor market is difficult at best. However, there are macroeconomic trends that can support speculation one way or the other. If the economy continues to grow, inflation keeps softening and the Fed nears the end of its rate hike cycle, significant layoffs are less likely. However, if inflation persists and the economy tips back over into a full-blown recession, employers are more likely to pull in their horns and trim their payrolls. Based on expert predictions thus far, however, massive layoffs in 2023 currently seem unlikely.
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