Layoffs Are Low. That Doesn’t Mean the Labor Market Is Strong.

Past economic cycles show that unemployment starts to tick up ahead of a recession, with wide-scale layoffs coming only later.

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 labor market. Historically, job cuts have come only once an economic downturn was well underway.

The Great Recession, for example, officially began at the end of 2007, after the bursting of the housing bubble and the ensuing mortgage crisis. The unemployment rate began rising in early 2008. But it was not until late 2008 — after the collapse of Lehman Brothers and the onset of a global financial crisis — that employers began cutting jobs in earnest.

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