The economy is all over the place these days.
With inflation surging, stock markets swooning, and growth slowing as interest rates rise, talk of a recession is getting louder. A number of companies have started laying off workers, even though many employers are still desperate to fill jobs.
“I can’t recall anything quite like this in recent history,” said Mark Melnik, director of economic and public policy research at the UMass Donahue Institute. The drumbeat of negativity is affecting the psychology of the market, he said, making it feel like we’re at a “teetering point” and possibly triggering an even bigger downturn. But abundant job openings, rising wages, and low unemployment all point to a healthy economy.
“It’s definitely a funny mix,” he said.
So what does this uncertainty mean going forward? Will the tight labor market suddenly go slack, and if so, who’s at risk?
Given how mightily employers have struggled to attract and retain workers recently, a downturn may not necessarily lead to the widespread layoffs of the past, said Aaron Sojourner, a labor economist at the W.E. Upjohn Institute for Employment Research in Kalamazoo, Mich. “I think they understand the value of the relationships they have with workers now in ways they didn’t ... three years ago,” he said.
Take what happened in the first quarter of the year: Employment growth was strong but productivity fell, meaning there was less output per worker. That suggests employers were holding onto people they didn’t necessarily need, said Alan Clayton-Matthews, professor emeritus of economics at Northeastern University: “All of that’s consistent with employers saying, ‘I don’t want to lay people off because I might need them.’ "
Employment growth has slowed recently, but job vacancies have outnumbered job seekers for nearly a year, according to the most recent Bureau of Labor Statistics data from April. That’s in part due to the labor force being smaller than it was before the pandemic because of an elevated death rate, a drop in immigration, and an increase in early retirements. People who decided to stop working as real estate values skyrocketed and the stock market soared could rejoin the labor force if their nest eggs start to erode, Sojourner said.
Through May of this year, fewer job cuts have been announced than last year — or in any January-May time period in nearly two decades, according to outplacement firm Challenger, Gray & Christmas. But several sectors, namely tech, have started shedding workers.
Locally, Thrasio, an aggregator of Amazon brands based in Walpole, and DataRobot, a Boston artificial intelligence company, laid off several hundred workers between them in May, followed in June by layoff announcements from Boston security-tech firm Cybereason, Newton education-tech company Esme Learning, digital-security startup Aura, and 3D-printer maker Desktop Metal, both in Burlington.
Nationwide, a steady drip of layoffs have been announced at several video game companies, a crypto trading platform, and the online real estate broker Redfin. A few major corporations have also cut jobs, including electric car maker Tesla, payment platform PayPal, and streaming service Netflix; Facebook parent Meta and the Boston e-commerce site Wayfair have pulled back on hiring.
Some of the cutbacks are attributed to firms that either scaled up quickly without huge profitability or are sensitive to mortgage rate hikes or falling real estate prices, as well as a softening demand for digital services that spiked during the pandemic.
And yet the Mass Technology Leadership Council’s job board continues to grow, with nearly 9,000 open jobs at 73 companies nationwide, noted Sara Fraim, vice president of programs and policy. Last year, only 10 percent of open Massachusetts tech jobs were filled, she said.
“I don’t see cause for concern right now,” she said.
If there is a downturn, it could actually help small companies that have struggled to keep up with the increasingly high wages offered by large organizations. “Salaries were out of control,” she said.
Although if more companies scale back, Fraim worries the progress the tech sector has made in diversifying its workforce by welcoming nontraditional applicants without college degrees could be in jeopardy.
Similarly, Melnik at the UMass Donahue Institute worries that high gas and food prices will drive people to scale back on dining out, shopping, and travel, and hospitality workers whose jobs were cut during the pandemic could be vulnerable to another layoff. These lower-wage workers are also dealing with increasing costs — rising housing prices, in particular — and losing their jobs, potentially for the second time in recent years, would be devastating.
“Both of the last two recessions have been remarkably unequal in the sense that they’ve really hammered folks in low-wage industries, so we’ve had this disparate effect of economic downturns on communities of color, renters, young folks,” he said. “Those are the populations I’m most concerned about.”
Demand is still strong in the short-staffed hospitality sector, said Martha Sheridan, president of Greater Boston Convention and Visitors Bureau, noting that June was expected to be one of the best on record for local hotels due in part to the Celtics playoffs, the US Open golf tournament, and the Paul McCartney concert at Fenway Park. High airfare costs and a continued deficit of international visitors could have a long-term impact, she said, but “we’re not raising any alarm bells yet.”
But industries sensitive to interest rate hikes, such as construction and manufacturing, particularly cars, could be vulnerable during a slowdown, according to Josh Bivens, research director at the Economic Policy Institute.
A severe downturn is not inevitable, said Northeastern’s Clayton-Matthews, noting that most recessions come on quickly as the result of a shock of some sort. But the doom and gloom is mounting nonetheless.
“Everyone’s pretty sour about the economy,” he said. “We’re also very bad at predicting recessions. The fact that so many people are sour and expecting recession actually gives me a little bit of confidence that it’s not going to happen.”