What corporate layoffs tell us about the economy

Amid declining sales, Gap announced on Tuesday that it will cut about 500 jobs at its offices in San Francisco, New York and Asia. It’s one of many companies, including Peloton, HBO Max and Wayfair, to have laid off employees in recent months.

Marketplace often reports layoffs as they happen, business by business. But let’s put what’s going on in a larger context: There’s a natural reason why layoffs catch our attention, said Betsey Stevenson, an economist at the University of Michigan.

“The stories always appeal to us because they’re scary,” she said. “It’s scary to be fired. It’s scary losing your job.”

It’s also scary when the narrative is that a recession could be imminent. Of course, people’s eyes are peeled after bad news. There are practical reasons for us to also consider redundancies.

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“That may be one of the quickest ways we can access this data,” Stevenson said.

Company announcements are immediate, with the Labor Department’s overall picture numbers lagging behind by more than a month. The latest job vacancies and labor turnover survey found that 1.4 million people lost their jobs in July. For reference, Stevenson said that on average, about 2 million jobs are lost each month in the US.

Also, layoffs in certain industries — like auto and what automakers are saying about job cuts — can be a sign of trouble ahead.

“When things go bad, people say, ‘Well, you know, I have a car. My car isn’t perfect, but I don’t really need to replace it now,'” said Yongseok Shin, an economist at Washington University in St. Louis.

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Meanwhile, some industries are sometimes too volatile to examine piecemeal. In the technology space, companies tend to expand and collapse quickly; Hospitality always has a lot of turnover. And layoffs are a normal – albeit unfortunate – part of doing business in general.

“Some companies grow. Some companies have been productive, but now they are losing market share and have to downsize,” Shin said.

It seems we are in an era where risk is high and predictability low. “This is a very unusual economic time,” said Cornell economist Erica Groshen, “and nothing is behaving as it normally does.”

Consumer habits have changed significantly in recent years. When COVID started we stopped buying office clothes and started buying exercise equipment. We baked bread and remodeled our homes. Then we stopped our video games and streaming subscriptions to enjoy traveling and eating. And behind each of these trends are jobs.

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