US companies avoiding layoffs, but hiring has slowed

As job growth has slowed and unemployment has crept up, some economists have pointed to a sign of confidence among employers: They are, for the most part, holding on to their existing workers.

Despite headline-grabbing job cuts at a few big companies, overall layoffs remain below their levels during the strong economy before the pandemic. Applications for unemployment benefits, which drifted up in the spring and summer, have recently been falling.

But past recessions suggest that layoff data alone should not offer much comfort about the labour market. Historically, job cuts have come only once an economic downturn was well under way.

The milder recession in 2001 offers an even clearer example. The unemployment rate rose steadily from 4.3 per cent in May to 5.7 per cent at the end of the year. But apart from a brief spike in the autumn, layoffs hardly rose.

Earlier recessions followed a similar pattern, for what economists say is a straightforward reason: Layoffs are disruptive, expensive and bad for morale. So companies try to avoid cutting jobs until they have no choice - sometimes waiting longer than financial logic would dictate.

"It's costly to lay someone off," said Mr Parker Ross, global chief economist at Arch Capital, an insurer. "That's something that generally firms turn to as a last resort."