A Quick Lesson From January’s Jobs Report

Experts called last Friday’s jobs report “solid” after January’s headline numbers didn’t deviate much from their longer-running trends. Nonfarm payrolls rose by 143,000 (after December’s upwardly revised 307,000 add) while the unemployment rate ticked down from 4.1% to 4.0%.^[i] Amid the usual scuttlebutt about the numbers’ implications, one outlet pointed out the Information Technology sector’s unemployment rate rose.^[ii] That provides us an opportunity to revisit the “Tech layoff” fear from a couple years ago, which holds some relevant lessons for investors today.  

Take a trip with us down memory lane to late 2022. It was a challenging period for investors. A sentiment-driven bear market started early that January. Different fears rotated in and out of headlines, from Russia’s invasion of Ukraine and high inflation to Fed rate hikes and midterm election uncertainties. Against that backdrop, some of America’s largest Tech firms announced multiple rounds of layoffs, with a few CEOs blaming excessive hiring tied to the pandemic and the boom for cloud-based services as so many people suddenly stayed and worked at home.^[iii] Experts pondered what the layoffs meant for the economy at large. Were they evidence Fed rate hikes were biting? Or, worse, a harbinger of a looming recession?

Nearly two-and-a-half years later, we know the worst-case scenario didn’t manifest. There was no recession even though jobs in the Information sector (which includes most Tech) fell. After hitting 3.1 million in November 2022, Information employment fell by -183,000 workers to 2.9 million in October 2024 (payrolls have since climbed by 23,000 workers through January).^[iv] But total nonfarm payrolls rose by more than 4.8 million from November 2022 – January 2025 as Information’s soft patch didn’t stop hiring elsewhere.^[v] Health Care added close to 1.5 million jobs over that stretch.^[vi] Leisure and Hospitality gained nearly 800,000 workers while construction employment rose by over 700,000.^[vii]

In our view, this is a useful reminder that Tech isn’t the economy. Despite all the headlines touting every hiring or firing decision in Tech—perhaps motivated by the sector’s big market-cap footprint—moves there aren’t synonymous with the broader, diverse American economy. Besides, Tech jobs—like any other labor data—are backward-looking confirmations of past conditions and the decisions businesses made in response. They say less about the broader economy and more about industry-specific developments from the relatively recent past.

To see this in stark relief, go back to the aftermath of the Tech bubble’s implosion in 2000. As Exhibit 1 shows, after peaking in early 2001, Information payrolls slid for the next 10 years (and through two recessions). Clearly, the sector had bloat to work off.

Exhibit 1: Information Jobs, January 1995 – January 2025

Source: St. Louis Federal Reserve, as of 2/11/2025. All Employees (Information), seasonally adjusted, January 1995 – January 2025.

Yet falling Information payrolls didn’t prevent total payrolls from growing—a reminder that ongoing churn at the industry level doesn’t necessarily spill over into the broader economy. (Exhibit 2) Industry weakness can be a function of broader issues. But the reverse often isn’t true.

Exhibit 2: Information Didn’t Stop the Job Market From Growing

Source: St. Louis Federal Reserve, as of 2/11/2025. All Employees (Total Nonfarm) and All Employees (Information), seasonally adjusted, January 1995 – January 2025. Indexed to 100 in January 1995.