Marketplace - Why so many layoffs in a hot labor market?

Episode Date: February 15, 2024

Cisco, the communications infrastructure giant, is planning to cut lots of jobs. It’s the latest high-profile company to do so. Meanwhile, we keep getting positive indicators about the labor market, like today’s data on falling jobless claims. We’ll explain the disconnect on today’s show. Also: What rising import prices mean, tracking shipments on freight trains and why a bank created to integrate emancipated Black Americans into the economy matters today.

Two different data points point this economy in two different directions. Which way are we going? From American public media, this is Marketplace. In Los Angeles, I'm Kyle Rizdolf. It's Thursday today, the 15th of February. Good as always to have you along, everybody. The macroeconomic phrase of the day today, if I can take some literary license here, is cognitive dissonance, holding two contradictory ideas or facts in your mind at the same time.

So, fact number one, Cisco said today it's going to cut 4,000 jobs, about 5% of its total workforce, the latest in the drumbeat of layoffs already this year, especially in technology and media from Google and Microsoft to Paramount and the Los Angeles Times. Fact number two, we were told this morning first-time claims for unemployment benefits actually fell last week more than expected and for the second week in a row. And here's fact 2A, actually.

The January monthly jobs report showed better than expected job growth. So how does one square that circle? Marketplace's Megan McCarty Carino gets us going. First, some statistics. The U.S. workforce is big. square that circle. Marketplace's Megan McCarty Carino gets us going. First, some statistics. The U.S. workforce is big, like 160 million people. So job cuts of 4,000 at Cisco or 34,000 across the tech industry don't make a huge dent. They're also pretty normal, says Julia Pollack, chief economist at job site ZipRecruiter. Companies are constantly restructuring, doubling down on bets that work, unwinding bets that didn't work, and shifting people around. About 20 million people are laid

off or fired each year. Layoffs have increased since their record lows a few years ago, says Layla O'Kane, senior economist at Lightcast. But they're not even at pre-pandemic levels. They're just at places you've heard of. These layoffs are happening to really visible companies that a lot of people think of as maybe aspirational places to work. And the factors behind many of these cuts don't necessarily apply to the whole economy, says Gregory Daco, chief economist at EY. We are seeing some sectors where there was perhaps overhiring that are seeing a more pronounced correction in terms of their workforce and more pronounced

number of layoffs. Meanwhile, he says industries like health care and education can't hire fast enough. But that's not where the headlines are, says Bharat Ramamurti, the former deputy director of the White House National Economic Council. Focus on layoffs, I think, conveys an impression to people that the economy is in worse condition than it's in. Inflation and economic uncertainty, he says, have made the public particularly attuned to bad news. I'm Megan McCarty Carino for Marketplace. There were some other bits of data today of note. Retail sales, about which more later. Also, courtesy of the Department of Labor, something called the

Import Price Index. Just like it sounds, prices of stuff we import into this economy, they were up in January almost 1%. Consumer goods, fuel, industrial supplies, vehicles, food as well. Marketplace's Justin Ho has that one. Up until January, the price of imported consumer goods hadn't gone up since last May. That's why it's a little concerning that those imports got more expensive last month, says Megan Schoenberger, senior economist with KPMG. We're still on a deflationary path, but the worry is that that trend is reversing too early.

Then there's the price of imported fuel, especially petroleum, which also rose in January. Laura Veldkamp, an economics professor at Columbia, says that can ripple throughout the economy. It certainly makes the price of production higher, the price of getting goods to a market where you might go buy them. That gets more expensive. And so as a result, we see producer prices going up and then consumer prices going up. Not every type of import is raising a red flag right now. For instance, imports of industrial supplies, materials, and other intermediate goods got more expensive, but those are just a small part of what goes into a finished product that a consumer buys, says Menzi Chen, an economics

professor at the University of Wisconsin. At the final step of production, there's a lot of stuff that's added in, so distribution, marketing, and services at the end. But even as inflation has slowed down, the price of services has stayed pretty high, says Megan Schoenberger at KPMG. If those stay elevated at the same time that this good disinflation trend reverses, that can mean stickier inflation this year. As a result, Schoenberger says she'll be keeping an eye on whether import prices keep increasing in the coming months. I'm Justin Ho for Marketplace. On Wall Street today, traders looked around. increasing in the coming months. I'm Justin Ho for Marketplace. When something does get imported into this economy, as Justin was talking about, there is a way better than even chance that it's

going to spend some time in a truck or on a freight train getting where it needs to go. If it's on a truck, the shipper and the recipient can track it pretty closely. Think you tracking your next Amazon delivery, right? If it's on a train, not so fast. But the freight industry is on its way to changing that. As of this month, three of the big six American freight railroads have signed on to a joint venture that would enable GPS tracking of rail cars. The idea being that if it's easier for companies to track their rail shipments, maybe railroads can take a little bit of that trucking business, huh? Marketplace's Henry Epp has that one. Freight rail companies are really profitable, says Jason Miller, who heads the Department of Supply Chain Management at Michigan State University.

But he says one of their main sources of business is hauling coal. And we're just not using as much of that as we used to. With coal as a waning industry, the railroads have to find growth opportunities elsewhere. And those growth opportunities are in hauling things that often end up on trucks, furniture, food and beverages. So to compete with trucking, Miller says. growth opportunities elsewhere. And those growth opportunities are in hauling things that often end up on trucks, furniture, food and beverages. So to compete with trucking, Miller says, they have to have better visibility. That's industry jargon for what this effort called Rail Pulse is all about, letting customers track where their stuff is. I find it amazing myself that it has taken this long. Lisa Elram at Miami University in Ohio says if rail companies can figure this out,

they could do well for themselves because shipping by rail uses a lot less fuel than trucking. Companies are very interested, not only in saving money, but reducing the environmental impact of their transportation. So far, Rail Pulse has done a pilot of its GPS system on 3,600 rail cars,

says the company's general manager, David Shannon. So the ultimate goal is about 1.6 million rail cars that traverse the North American rail network. So we've got a long, long way to go. And that long route involves convincing the other big freight companies, lots of smaller railroads, and others to get on board. I'm Henry Epp for Marketplace. This one gets filed under the heading, I believe, of small solace if you're trying to buy a house in the United States. At the end of last year, the median sale price of a single family home fell. It was just about $480,000 at the end of 2022, down to nearly $430,000 by late last year. A steal? That is not, I grant you. It also doesn't tell nearly the whole story about what you're going to find out there. That old saying is right, right? Location, location, location. Here's today's installment of our series, Adventures in Housing.

My name is Caitlin LeClaire, and my family and I live in Wayland, right. Location, location, location. Here's today's installment of our series, Adventures in Housing. My name is Caitlin LeClaire, and my family and I live in Wayland, Massachusetts. My company ended up moving headquarters to Texas. We came from Minnesota before, so our idea of what a home price should be was kind of like a little more rural Minnesota, Midwestern. Texas was a whole different story. We ended up renting and during the course of ended up being two and a half years that we were there, we had maybe two or three of these moments where we'd go and we'd look around and say, should we buy this? Should we buy that? And the prices we were looking at there,

like just to get something that was kind of like doable was like 500,000. So we were like, well, this is insane. This is so much. Of course, we laugh at ourselves now because of that. So we ended up not buying. We just rented the same place the whole time. We came out to Massachusetts from Texas and it's like, all right, we're just going to go around.

We've got this whole list of houses. We're going to just hit each one, one after the other. And by the end of the weekend, we're going to have a house. It didn't work out that way. By the end of the weekend, we had one we wanted to bid on. We bid on it. We lost it, which was our first of many times of doing that. We would just keep getting more aggressive and more aggressive on our bids because it's like you lose one and you're like, oh my gosh, we didn't go high enough. So finally we found a house in Wayland. Before my husband looked at it, we saw it posted. I said to him, don't bother going to that house. It's too expensive and I know I'm going to fall in love with it. Well, he got out here and he did. I know I'm going to fall in love with it. Well, he got out here and he did.

I remember him texting, the backyard is enchanted. And I was like, what are you doing there? We were up in like the 900 to a million budget at that point. And this one was listed for $959, $969. And we bid over a million for it. And we got it. I never dreamed I would spend this much for a house. And if I thought that I could, I would be living in some amazing mansion. But I just live in a normal house. It's totally terrifying. Like it keeps me up thinking about how high my house payments are. I mean, it's doable for now, but I don't think it can be forever. So we'll see. I mean, we love the area. That's one thing. Like it is

enchanted and it's, I guess, thrilling, but also terrifying. Terrifying indeed. Caitlin LeClaire dealing with those house payments in Wayland, Massachusetts. No matter where you are in your terrifying or even thrilling adventure in housing, let us know about it. would you? Marketplace.org. Coming up. The one and only Frederick Douglass, the most photographed man of the 19th century. Author, abolitionist, statesman, and banker. But first, let's do the numbers.

Dow Industrial is up 348 today. That is 9 tenths percent. Closed at 38,773. The Nasdaq added. That is 9 tenths percent. Closed at 38,773. The NASDAQ added 47 points, 3 tenths percent. 15,906. The S&P 500 picked up 29 points, almost 6 tenths percent. 5,029 there. The commercial real estate sector is hurting. We've covered that.

But CRE Services provider CBRE Group is forecasting its annual profit will come in above analyst estimates. Shares up 8.5% today. Shake Shack beat profit expectations thanks in part to higher prices. Shares, get this, sizzled up 26%. That's a lot. The burgers are fine, but 26%. Wendy's, on the other hand, fell 1.5% after forecasting. Earnings would come in below

estimates. Two of the culprits there, higher costs for commodities and labor. Bond prices were up as well. The yield on the 10-year T-note fell to 4.24%. You're listening to Marketplace. This is Marketplace. I'm Kai Risdahl. Just weren't feeling it last month, were you? Retail sales, we learned from the good people at the Census Bureau this morning, fell eight-tenths percent last month, more than prognosticators had been saying they would. And that news came with a downward revision in retail sales for December, the all-important holiday season, as you know. That goes into the how consumers are feeling right now, do you suppose, Blender blender along with inflation, though, coming down still above where people had been hoping and overall price levels stubbornly high? Put that in the blender and outcomes.

Marketplace's Mitchell Harmon. Restaurant owner Judd Harris knows prices. It is too little griddle breakfast and lunch joints in Portland, Oregon, he's constantly monitoring what he has to spend for food and kitchen supplies and how much he can charge for menu items. As far as pricing goes, it's been a bit of a roller coaster. Everything changes, like the market price of things like bacon and stuff. Recently, it has been very extreme. At the grocery store, bacon now averages around $6.60 a pound,

up 20% since the pandemic hit. Harris says his restaurant prices are up 20 to 50%. And even though lately he's seen price increases moderate, he still gets sticker shock when he shops for himself as a consumer. We're getting smoked out here. My personal finances, I mean, we do okay, but it's hard to go to the grocery store and be like, wow, is it really going to be $100 for these groceries that would have been so much less? This difference between how consumers experience inflation and high prices is something economist Ulrika Malmondia studies at the University of California, Berkeley. something economist Ulrika Malmondia studies at the University of California, Berkeley.

Consumer expectation will adjust to see that the rate of price changes will be slower. Now, that doesn't mean that consumers are not still wrestling with the high price levels. This wrestling match is evident in consumer sentiment surveys. Nearly 40% of consumers say high prices are currently eroding their standard of living, a figure that's barely budged since inflation shot up in 2022, says Joanne Xu at the University of Michigan. Even though consumers have noticed inflation has slowed,

they have also noticed the impact of those prices on their living standards is still pretty painful. This is more painful because we tend to have an idealized notion of how low prices used to be, especially back when we were first forming our impressions of normal prices as young adults. This, says University of Chicago consumer psychologist Ayelet Fishback, is a well-documented psychological phenomenon. We remember the past being rosier, easier, and cheaper than it was. Fishback says we're nostalgic by nature,

and also not very good at calculating how prices and wages have both gone up over time. The math is easier if you just look at the numbers and you don't compare it to your buying power. You remember the burger costing $1 and now it is $5. Specifically, we remember the low prices. We don't remember how much less money we made. But if our buying power has not kept up, it's harder to get comfortable with

the high prices we're now paying, says UC Berkeley economist Ulrika Malmondia. Price changes in goods and services have to be in line with the changes in wages for people to be able to afford their monthly bills. So the big question in terms of how much consumers will be scarred is, did their wages adjust to these increased price levels? And there is plenty of scarring because through most of this recent bout of inflation, wages didn't keep up. For more than two years, the consumer price index rose significantly faster than average hourly earnings. Wages only started to outpace prices about nine months ago. For many consumers, the world is not back to normal, back to pre-inflation, because with their current income, they're not able to afford the consumption

they were able to afford before that spike. And that's one reason why, even as inflation fades, high prices are likely to keep really annoying consumers every time they go to get groceries or shop for a new car or pay the rent. I'm Mitchell Hartman for Marketplace. The latest data from the Federal Reserve, it's from 2022, shows that 13 percent of black Americans are unbanked. To quote the Fed, that means that neither they nor their spouse or partner had a checking, savings, or money market account. The comparable figure for white Americans, just 3%. And as often happens, the root cause can be found in history here at the end of the Civil War and the rise and the collapse of something called the Freedmen's Savings Bank. Dr. Justine Hill Edwards is an associate professor of history at the University of Virginia,

also the author of a forthcoming book about the Freedmen's Bank. Professor Edwards, welcome to the program. Good to have you on. Thank you for having me. For those unfamiliar, could you give a 30-ish second pricey of the Freedmen's Bank? Sure. Well, the Freedmen's Bank, also known as the Freedman's Savings and Trust Company, was a savings bank founded in March of 1865. And it was founded by a group of white politicians and philanthropists for the financial benefit of recently freed slaves.

As I was prepping to speak with you, it occurred to me that the phrase well-meaning white philanthropists should probably be appended here. Is that fair? That is absolutely true. The basic foundations of the Freedmen's Bank were created by white Northerners who, in some ways, really believed that they could economically help the nation's almost 4 million freed African-Americans. And so they conceived of the bank as a vehicle to help them make the really dangerous transition from slavery to freedom, but in terms of their finances and economics. The reason this bank failed matters through, you know, not just the history of that period, but up to today, right? It does. There was a financial crash,

a financial crisis in the fall of 1873, and African Americans started to withdraw their money in mass. Frederick Douglass comes in, he becomes the bank's president in March 1874, and he looks at the bank's finances and realizes that the bank is over leveraged. The finance committee had approved of millions of dollars of bank loans that were not going to be repaid. And interestingly enough, the majority of those loans went to the white partners and businessmen who were affiliated with the bank's trustees. We should point out here that was the Frederick Douglass. Yes, the one and only Frederick Douglass, the most photographed man of the 19th century, was the bank's last president.

Okay. All right. So with all of that as context, I want to do a little prologue here. of this bank that Black Americans had not had not necessarily financial institutions, but financial know-how and financial practices before emancipation? Yes, that's right. And in many ways, they really didn't understand the financial knowledge that African Americans were bringing with them into freedom. African Americans who were enslaved were cultivating ideas of how to make and save money in the period of slavery. And so they were bringing with them very concrete ideas about saving and what they wanted to do with their money, which was to buy property and buy land.

Well, that's where I wanted to go next, because, you know, one of the many, many, many tragedies of the black American economic experience is the inability that black Americans have had to build generational wealth. And in a way, it kind of starts here. You relate this story either in an article I read or parts of your other writings about during the Great Depression, a descendant of one of these people writing to FDR, it would be really great if I could get my hands on my grandmother's deposit right now. Exactly. And so we see that there is kind of a generational memory of the Freedmen's Bank and its failure. And I think in many ways, too, it's dictated the oftentimes fraught relationship that we've seen between the financial services industry and African-Americans in the 20th and 21st centuries. Well, say more about that, because this was 150 something years ago that this happened. And it, you know, your theory of the case here is that it affects things today. Yes. I mean, we see, especially in the period after the bank ends, we see African Americans

continue not to trust and engage with the financial services industry that becomes so important in building credit to be able to purchase homes, to pass down generational wealth. And so in some ways, it's not surprising that the wealth gap is as staggering as it is today. As you have done the research for your forthcoming book on this subject, the title of which we'll get to when we say goodbye here, I imagine there were so many instances as you were doing the research where it was a what-if moment. What if things had been different? What if they hadn't expanded to white bankers? What if the loans had gone to some of the recently enslaved Black Americans? There must have been so many turning points where today it would have been so different. Sure. I mean, I have heard just in my own family the idea of saving money not in banks,

but underneath the mattress. In many ways, I think that these kind of memories of the bank, even though we may not have the language to connect it to behaviors today, it's there, which is why I think that the history of this bank is so important. Justin Hill Edwards is an associate professor of history at the University of Virginia. She's got a book coming out on the subject at hand today. It's called Savings and Trust, the Rise and Betrayal of the Freedmen's Bank. Professor Edwards, thanks for your time, Em. I appreciate it. Thank you so much for having me. This final note on the way out today in which nothing can possibly go wrong. Open AI, the company that I think it's fair to say mainstreamed generative artificial intelligence to the rest of us. They're out with a new product, not yet publicly available, which is a good thing to be clear.

You'll see what I mean in a second. It's called Sora, and it's an AI text-to-video generator. Google it. You've got to see these things. Trouble a-coming. Be on your toes, people. That's all I'm saying. John Buckley, John Gordon, Rick Cardin,

at the Parker, Amanda Petra, and Stephanie Seek are the Marketplace editing staff. Amir Bibawi is the managing editor. I'm Kai Risdahl. We will see you tomorrow, everybody. This is APM. All over the country. We need to improve reading in Wisconsin.

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