Covids legacy of madness Layoffs are spreading but some employers

Covid’s ‘legacy of madness’: Layoffs are spreading but some employers can’t hire fast enough

  • Layoffs have recently spread beyond tech giants like Microsoft and Amazon.
  • Service industries like hospitality and restaurants have shut down to rebuild from the pandemic.
  • The Fed has been closely monitoring job and wage growth to tame inflation.

A rent sign is posted on the window of a Chipotle restaurant in New York, April 29, 2022.

Shannon Stapleton | Portal

Job cuts are accelerating at some of the largest US companies, but others are still scrambling to hire workers, the result of wild swings in consumer priorities since the start of the Covid pandemic three years ago.

Tech giants Meta, Amazon and Microsoft, as well as companies from Disney to Zoom, have announced job cuts in recent weeks. Overall, U.S.-based employers cut nearly 103,000 jobs in January, the most since September 2020, according to a report by outplacement firm Challenger, Gray & Christmas released earlier this month.

Meanwhile, employers added 517,000 jobs last month, almost three times the number analysts were expecting. This points to a still tight job market, particularly in service sectors that were previously hit hard by the pandemic, such as restaurants and hotels.

The momentum makes it even more difficult to predict the path of the US economy. Consumer spending has remained resilient, surprising some economists despite headwinds such as higher interest rates and persistent inflation.

All of this is part of the “legacy of madness” of the Covid pandemic, said David Kelly, chief global strategist at JP Morgan Asset Management.

The Bureau of Labor Statistics is expected to release its next nonfarm payroll on March 3.

Some analysts and economists warn that weakness in some sectors, strains on household budgets, falling savings and high interest rates could further compound job weakness in other sectors, particularly if wages fail to keep pace with inflation.

Wages for workers in the leisure and hospitality industries rose to $20.78 an hour in January from $19.42 a year earlier, according to the latest data from the Bureau of Labor Statistics.

“There’s a difference between saying the job market is tight and the job market is strong,” Kelly said.

Many employers have faced challenges in recruiting and retaining employees in recent years, including workers’ childcare needs and competing jobs with potentially better hours and salaries.

With interest rates rising and persistently high inflation, consumers could cut spending and trigger job losses or reduce hiring needs in otherwise thriving sectors.

“When you lose a job, you don’t just lose a job — there’s a multiplier effect,” said Aneta Markowska, chief economist at Jefferies.

This means that while some tech companies could struggle, it could result in lower business travel spending, or if job losses escalate significantly, it could prompt households to severely restrict spending on services and other goods.

Some of the recent layoffs have come from companies that have been increasing staff over the course of the pandemic, when remote working and e-commerce were more important to consumer and business spending.

Amazon last month announced it would cut 18,000 jobs across the company. The Seattle-based company employed 1.54 million people at the end of last year, almost double the number it had at the end of 2019, just before the pandemic, according to company documents.

Microsoft said it was cutting 10,000 jobs, about 5% of its workforce. The software giant had 221,000 employees at the end of June last year, up from 144,000 before the pandemic.

Tech “used to be a growth sector, growing at any cost, and it’s maturing a bit,” said Michael Gapen, head of U.S. economic research at Bank of America Global Research.

Other companies are still hiring. Boeing, for example, plans to hire 10,000 people this year, many in manufacturing and engineering. In addition, around 2,000 jobs in companies, mainly in human resources and finance, are being eliminated through layoffs and turnover. The growth is expected to help the aerospace giant ramp up production of new planes for a recovery in orders, with big sales to airlines like United and Air India.

Airlines and aerospace companies were devastated at the start of the pandemic as travel dried up and are now playing it up. Airlines are still looking for pilots, a shortage with limited capacity, while there has been a sharp increase in demand for experiences such as travel and food.

Chipotle plans to hire 15,000 people to prepare for a busier spring season and support its expansion.

Businesses large and small are also finding that they need to raise wages to attract and retain workers. Industries that have fallen out of favor with consumers and other businesses, like restaurants and aerospace, are rebuilding workforces after shedding employees. Walmart announced it would raise the minimum wage for store employees to $14 an hour to attract and retain employees.

The Miner’s Hotel in Butte, Montana, has increased the hourly wage for housekeepers for this position by $1.50 to $12.50 over the past six weeks due to a high turnover rate, according to Cassidy Smith, its general manager.

Airports and concessionaires have also tried to hire workers in the wake of the travel recovery. Phoenix Sky Harbor International Airport hosts monthly job fairs and offers childcare grants to some employees to facilitate hiring.

Austin-Bergstrom International Airport, where schedules by seat increased 48% this quarter from the same period in 2019, has launched a number of initiatives such as:

The airport also increased hourly wages for airport facility representatives from $16.47 in 2022 to $20.68 in 2023.

“Austin has a high cost of living,” said Kevin Russell, the airport’s deputy chief of talent.

He said employee retention has improved.

However, electricians, plumbers and heating and air conditioning technicians in particular are hard to retain because they may work in other locations that are not 24 hours a day and at higher wages, he said.

Many companies’ new hires need training, which is a time-consuming element for some industries to get back on track, even though recruiting new employees has become easier.

“Hiring is no longer a barrier,” Boeing CEO Dave Calhoun said on a earnings call in January. “People are able to hire the people they need. It’s all about the education and ultimately preparing them to do the challenging work that we ask for.”

— CNBC’s Amelia Lucas contributed to this article.