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News headlines announce layoffs at many companies, but the latest employment data from the federal government show a large increase in jobs. The weekly report on initial claims for unemployment insurance indicates a very small increase, but still an unusually low level. Today current headlines don’t match official data, they will soon come into alignment as unemployment rises.

The WARN Act Leads to Headlines

Companies that will close plants or lay off a large number of workers must provide advance notice to the workers and to government entities, typically 60 days before the layoffs. Although the law does not require a press release, local news organizations usually publicize layoffs. So the news stories pre-date actual layoffs by about two months.

Job Opportunities for Laid-Off Workers

Laid off workers have had plenty of job opportunities in recent years. The number of open positions has exceeded the number of unemployed people since May 2021. That means many displaced workers can walk across the street to another company with a “Now Hiring” sign on display.

Of course, some laid off workers are in occupations that are being downsized. An escrow agent whose job is eliminated will have trouble finding another job soon, given the broad decline in home sales. But an accountant at the same company may be re-employed quickly in another industry. Specialization, then, limits rapid readjustment of the labor force.

Time Lags Lead to Headline-Data Mismatch

Time lags account for some of the disparity between current news and employment statistics. Residential construction employment, for example, has been roughly flat the last few months even though housing starts have dropped sharply. Current construction activity, though, is on projects begun some time in the past. That’s even more pronounced in apartment construction, which is 40% of the new housing units. So the drop-off of new housing starts takes time to translate into employment declines, but it eventually will.

Employment declines will certainly come. We see retail sales falling in sectors closely tied to home sales: building supplies, furniture and appliance. And some manufacturing sectors related to these products are cutting back on their employment now.

The normal process of a recession begins with interest-rate sensitive parts of the economy: single family home construction, multi-family construction, non-residential construction, business capital spending and big-ticket consumer spending (cars, RVs and boats). Then employment declines trigger cuts in discretionary consumer spending, such as clothing, sporting goods and travel. These spending declines lead to more employment cuts, concentrated in retailing and manufacturing. Further reductions in discretionary consumer spending combine with companies cutting overhead expenses in order to stay afloat. That really clobbers employment.

Job Losses Coming Late 2023 or Early 2024

Significant employment declines are likely to begin in late 2023 or early 2024. And that will just be the beginning. Job losses will likely continue for six to nine months. After that, recovery of the lost jobs will take another six to nine months.

The recession isn’t here yet despite a year of talking about it. Its slow arrival should not surprise us given the usual time lags in monetary policy as well as the gradual implementation of the Federal Reserve’s interest rate hikes. But the Fed’s anti-inflation efforts will take their toll on employment. Even though today’s news headlines don’t match the employment numbers, we’ll soon see gloomy data on jobs. That’s nothing to look forward to, but it’s inevitable given where things have been going.

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