Small Businesses Lead Hiring Spree: 3.67M Jobs Added Since Feb 2020

Small businesses with fewer than 250 employees accounted for the bulk sum of hiring within the US since the start of the pandemic. While a hiring surge by small businesses could be good for the economy, it is not necessarily good news for markets. 

That is because the Fed will face difficulties slowing down the economy and taming inflation as long as the job market is strong, which could force the central bank to further increase interest rates. 

Small Businesses Have Hired 3.67M People Since the Pandemic

Since early 2020, US small businesses have hired a net positive 3.67 million more people than have been laid off or those who quit. This accounts for almost 80% of all available job openings, according to a Wall Street Journal review of labor data and an analysis by Jefferies.

During the same time period, larger businesses with more than 250 employees have cut around 800,000 jobs. This comes despite some rapid pandemic-era expansions that saw major tech companies kept hiring employees amid a surge in demand for digital goods and products. 

“Small businesses are literally holding up the labor market,” said Aneta Markowska, chief economist at Jefferies. Elizabeth Trenbeath, franchise president at recruiting firm Snelling Staffing, allegedly said she had been flooded with inquiries from small and medium-sized businesses looking to add more employees. 

A hiring surge by small businesses could be good for the economy, but it can have bad implications for markets. That is because a strong job market will lead to a growing economy, which will force the Fed to continue raising rates in a bid to curb inflation. 

According to the latest report by the department of labor, the US added 223,000 jobs in December. The unemployment rate dipped to 3.5%, a 0.2% decline from November, back to its pre-pandemic low. Before that, the US had added 263,000 jobs in November. 

According to Markowska’s calculations, small businesses accounted for 78% of the U.S. job listings in November and 91% of the post-pandemic increase in job openings.

It is no secret that, in times of high inflation, the Fed needs to cool down the overheated economy. This translates to a weakened labor market, which December’s data doesn’t show. The report by Wall Street Journal said:

“Fed Chairman Jerome Powell has contrasted the 10.5 million job openings available with data showing the U.S. had six million unemployed workers that month as an example of the “economic dislocation” keeping inflation at unacceptably high levels.”

In the FOMC minutes released earlier this month, Fed officials said they expect higher interest rates to remain in place as they are committed to fighting inflation. They agreed that the federal funds rate should stay restrictive, possibly climbing to 5.4% during 2023 from December’s 4.5%. 

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Big Tech Continues Layoffs

When the economy is slowing down, and the inflation rate is decreasing, which is what has been happening over the past couple of months, demand falls, which in turn forces companies to cut costs by slashing jobs. This has been playing out in the Big Tech sector for several months.

As reported, tech giants have laid off tens of thousands of employees over the past couple of months. Last week alone, Alphabet, Microsoft, and Amazon, three of the biggest tech companies in the world, announced layoffs that affected a total of 40,000 employees combined.

It is worth noting that despite the massive layoffs, most tech companies still have more workers than at the start of Covid, underscoring Big Tech’s breathtaking hiring spree during the pandemic. 

Nevertheless, the S&P 500 ended the latest trading day on Wednesday down by 0.02%, closing at 4,016. Similarly, Nasdaq took a hit, plunging by 0.18% to 11,313, while Dow Jones surged 0.03% to 33,743.

Do you think the Fed will continue to raise rates aggressively despite declining inflation? Let us know in the comments below.