Labor Market Deteriorates Amidst Inflation and High Interest Rates
The pace of job cuts by U.S. employers has accelerated in early 2024, indicating a deterioration in the labor market due to ongoing inflation and high interest rates. According to a report published by Challenger, Gray & Christmas, companies planned 82,307 job cuts in January, marking a substantial 136% increase from the previous month. However, this figure is down about 20% from the same period last year, making it the second-highest layoff total for January since 2009.
Andy Challenger, senior vice president of Challenger, Gray & Christmas, stated, “Waves of layoff announcements hit U.S.-based companies in January after a quiet fourth quarter.” He attributed the cuts to broader economic trends and a strategic shift towards increased automation and AI adoption across various sectors. Although cost-cutting was cited as the main driver for layoffs, companies acknowledged the influence of automation and AI on their decision-making processes.
The Number of High-Paying Jobs is Decreasing
In January, the financial industry experienced the highest number of job losses, with 23,238 employees being laid off. This is the largest monthly layoff total for the sector since September 2018. The technology sector followed closely behind with 15,806 layoffs, the highest number since May 2023 and a significant 254% increase from the previous month.
Challenger noted that the rapid adoption of artificial intelligence is starting to impact jobs, particularly in media and tech, but companies are not solely blaming AI for the layoffs. In addition, food production companies cut 6,656 positions, the highest monthly total for the sector since November 2012, due to high costs and advancing automation. Retail stores also contributed to the job cuts, eliminating 5,364 positions in January, compared to only 110 in December. Restructuring, store closures, and the use of artificial intelligence were cited as the primary reasons for the layoffs.
Challenges in the Labor Market
The job market has remained historically tight over the past year, defying economists’ expectations for a slowdown. While economists believe that it is gradually normalizing after last year’s rapid pace, it is still far from breaking. These findings come ahead of the release of the more anticipated January jobs report from the Labor Department, which is expected to show an increase of 180,000 workers in employment, following a gain of 216,000 in December. The unemployment rate is predicted to rise slightly to 3.8%.