The most resilient U.S. labor market in generations has yet to show signs of cracking even as the fiscal hangover in Big Tech hits workers through widespread layoffs.

Despite tens of thousands of layoffs at Alphabet Inc., Meta Platforms Inc., Amazon.com Inc. and Microsoft Corp. in recent months, U.S. unemployment touched its lowest level in decades in December 2022, as the jobless rate was just at 3.5%. In California, the state with the highest number of technology workers, the unemployment rate was at a pre-pandemic 4.1% last month.

With two open positions available for each unemployed worker, there is little sign that this wave of layoffs will spread much beyond the tech companies that loaded up on staffing during the COVID-19 pandemic.

"Tech layoffs are not yet impacting the larger jobs market," said Shannon Seery, an economist with Wells Fargo. "I still think it's a relatively isolated and industry-specific story at this point."

'Pretty muted'

Since mid-January, Google has announced it was laying off 12,000 workers, Microsoft said it was letting go of 10,000 people and Capital One Financial Corp. said it was laying off 1,100 tech workers. Beyond tech, chemicals company Dow Inc. and manufacturer 3M Co. each announced that they were cutting at least 2,000 roles across their global workforces.

Nevertheless, unemployment insurance claims for the week ending Jan. 21 fell to 186,000, their lowest level since April 2022, according to the latest government data.

"So far the direct labor market impact in the sector has been pretty muted," said Joseph Politano of Apricitas Economics.

Many workers may be quickly finding new positions, but jobs reports could eventually reveal higher levels of unemployment within a few months.

"The layoffs will show up in the data, but it will take time," said Oren Klachkin, lead U.S. economist at Oxford Economics. "While layoffs have been announced, those employees are still technically on the payroll since they are receiving severance."

Initial unemployment claims have yet to rise materially and initial claims have yet to substantially transition to continuing claims, a likely indication that recently laid-off workers in the tech industry are still finding it relatively easy to find new positions, Seery with Wells Fargo said.

Wages rise

Many companies are still announcing substantial wage increases, indicating that the balance between supply and demand for labor remains historically tight. Walmart Inc., for example, announced Jan. 24 that it will raise its minimum wage to $14 per hour from $12 to retain workers.

"I continue to hear that there is a reluctance to let workers go after how difficult it has been to find them and fear of persistent shortages ahead," Seery said.

The resiliency of the jobs market remains an obstacle for the Federal Reserve as it attempts to tame inflation and the wage growth that feeds it, through interest rate hikes.

Hourly wages averaged $32.81 per hour in December 2022, up 4.6% from a year ago, according to the latest government data.

While wages continued to rise in the tech industry in 2022, there were also nearly 159,200 layoffs in the sector last year, according to Layoffs.fyi, which tracks the industry's labor market. The pace of job cuts has accelerated sharply at the start of this year, as there have been 57,600 layoffs in the first three weeks of 2023.

Tech states

Even as tech companies cut workers, overall employment growth continues in states with the most tech jobs.

California, Texas, New York and Florida have the most technology employees, combining for nearly 3.2 million workers in 2022, according to an analysis by tech industry trade group CompTIA.

All four of those states continue to see job growth. Texas added about 29,500 jobs in December 2022, while Florida added 21,400. California gained 16,200 positions and New York added 14,700, according to the latest government data.

But there are signs of a slowdown, as year-over-year job growth in those four states has declined steadily from highs in 2021. Payrolls in California, for instance, grew 3.6% from December 2021 to December 2022, the lowest percentage of annual growth since March 2021 when payrolls fell by 6.6%.

Job growth across the U.S. in information, a broad category that includes tech workers, was at just under 5.1% in December 2022, its lowest rate of annual growth since March 2021 when job growth fell by nearly 4.5%.

'Knock-on effects'

Though the impact of tech layoffs on the broader labor market is relatively minor now, indirect effects could be taking root in the wider economy, according to James Knightley, chief international economist with ING.

"Given these tend to be relatively high-paid roles, there will likely be noticeable knock-on effects on consumer-related sectors in localized areas, such as leisure and entertainment," Knightley said, as many impacted households cut back in spending.

Tech layoffs could also add to negative headwinds in the housing market, as high mortgage rates combine with job insecurity, slowing demand for homes, he said.

"A general slowdown is therefore going to mean less revenue for local companies and so implies downside risk for broader employment," Knightley added.