The downward trend in layoffs –which began in mid-2010 and persisted through this January — appears to have been decisively broken. An unfortunate but understandable feedback loop appears to be at work. Today’s Wall Street Journal describes it this way:
The cuts . . . reflect the shifting outlook of employers, many of whom had expected the economy to gain speed as the year progressed. Instead, growth has faltered. If the pace continues to disappoint, more companies will feel pressure to pull back.
This explanation of employer behavior reinforces my view that the forthcoming cuts in the federal budget will have the opposite of the intended effect. To repeat what I’ve said before: if the government’s out-go is reduced, so will be the private sector’s in-come. As the budget reductions take hold, the level of employment will fall below what it would have been in the absence of the budget cuts. The economy will lose — not gain — speed. Economic growth will falter further and “more companies will feel pressure to pull back.” Simply stated, the budget cuts will reinforce the feedback loop. The larger the reduction, the greater will be the reinforcement.