Should Americans Be Worried About Their Jobs?

Americans are worried about their jobs and feel uncertain about their financial conditions, but companies are still hiring and the U.S. economy is still growing despite elevated borrowing costs.

On Wednesday, the Commerce Department revealed that the economy expanded by 3.2 percent in the fourth quarter of 2023—a 0.1 percent revision down from last month's estimate—following strong 4.9 percent growth seen in the previous quarter. But consumers are feeling jittery about their jobs and concerned that the country may plunge into a recession, according to the Conference Board Consumer Confidence Index.

Economists say the labor market is still showing strength. Companies are recruiting as shown by job openings of more than 9 million in December, the highest in three months. Meanwhile, unemployment claims are low and in January employers added more than 350,000 jobs, smashing expectations, as the unemployment rate stood at 3.7 percent.

Recent headlines may have created an impression that job cuts, particularly in the tech, finance and media sectors, have escalated and that layoffs have begun to hit the U.S.

But Mahir Rasheed, a senior economist at insurance firm Swiss Re, cautioned against reading too much into the cuts reported in those industries as they represent a small sliver of the American labor market. The sectors that tend to power the U.S. economy, such as retail, leisure and hospitality, and health care, are still showing encouraging signs, he said.

In December, for example, layoffs hit 1.6 million, lower than the pre-COVID numbers when job cuts were at nearly 2 million in February 2020, data from the Bureau of Labor Statistics showed. Meanwhile, job openings are about 1.8 million higher than prior to the pandemic-induced economic crisis.

"There is reason to think you know we are in a full employment economy," Rasheed told Newsweek.

The U.S. economy was hurt by the lockdowns forced by the COVID-19 pandemic that led to millions of Americans losing their jobs and the country plunged, albeit briefly, into a recession. The re-opening of the economy unleashed pent-up demand from consumers whose savings turbocharged spending that powered the economy that has withstood elevated borrowing costs instituted by the Federal Reserve aimed at slowing inflation that ensued.

Fewer job openings, slower hiring expected

Interest rates currently at two-decade highs may slow job growth in 2024, some economists say. But that softening of the jobs market is expected to be from a cooling in hiring and less so from layoffs.

"Much of the adjustment in the labor market is coming through in terms of fewer job openings and slower hiring rather than a pickup in layoffs," Grace Zwemmer, an economic research analyst at Oxford Economics, told Newsweek.

Zwemmer pointed to jobless claims indicating a low number of layoffs. For the week ending February 17, initial claims fell by 12,000 to 201,000.

"While we expect claims may drift a bit higher as the economy slows this year, we don't expect a major spike," she said. "For now, the labor market remains tight, meaning that those impacted by layoffs should be able to find new work quickly, which would limit the number of affected people filing for unemployment."

Zwemmer echoed Rasheed's comments against using what's happening in the tech sector as a signal to what may be unfold with the overall labor market.

"There is always some churn in jobs, and we saw similar scares around an even larger wave of tech layoffs last year, which did not amount to any broader weakness in the labor market," she added.

Economists acknowledge that the tight monetary conditions are still filtering through the economy and may lead to a slowdown later in the year. The Fed held rates at their current 5.25 to 5.5 percent range—the highest in more than 20 years—for the fourth straight time at their last meeting and the expectation is that they are likely to stay elevated for a bit longer.

Growth may accelerate at a slower pace this year to about the 1 percent range, according to Kory Kantenga, a senior economist at LinkedIn.

"In the U.S. normally you want to see 2 percent or higher, and if growth slows down, there may be some deflation in the labor market in terms of maybe a little more slowdown in hiring," he told Newsweek.

COVID shock still present among Americans

While sections of the labor market have returned to historical patterns, layoffs are still low, Kantenga added. Employers may be "hoarding workers," as they are still uncertain about what the economy will look like going forward.

"They know how expensive it is to hire workers once they lay them off and then sometimes they don't want to come back," Kantenga said. "At the moment, unless we see some sort of big shock—maybe interest rates ended up being jacked up too high or they stayed high for too long—unless we see some big shocks, some big adjustment, there's no expectation that we're going to suddenly see a spike in layoffs."

Economists Newsweek spoke with anticipate the unemployment rate to potentially tick up to a little over 4 percent in 2024 as the effects of high interest rates seep deeper into the economy, where borrowing costs for things like home and car loans and business investment become more expensive.

Some of the layoffs reported in January may be seasonal as typically companies are reluctant to cut jobs during the holidays, Kantenga said.

Asked why Americans are feeling uncertain about jobs and the economy despite the data showing that the economy is performing well, Kantenga said that consumers may still be struggling with the after-effects of the COVID shock.

"If you look at consumer sentiment, it looks recessionary," he said. "That's a fact. But when you look at growth, for example, or you look at unemployment, these things look far from recessionary."

The COVID shock, coupled with many experts anticipating a recession last year, may have unsettled Americans about their financial future.

"Some of it may have to do with the pandemic, some of it may have to do with just uncertainty or folks not knowing what comes next after a big shock like that and the fast recovery, you don't really know what's coming next," Kantenga said.