It's not. They're cutting costs because it's expensive to run a giant social network. Unlike many social networking services, LJ actually has a multi-layered revenue model. I'd be more worried about what happens to Twitter when the venture capital money dries up.
As an aside, I absolutely adore economic downturns. It's an excuse for anything and everything. To prove my point, here's a series of sample questions, all of which could be answered with, "It was due to the economic downturn."
"Why did you lay people off?"
"Why did you set my house on fire?"
"Why did you glue a caption onto my cat?"
"Why did you have sex with my dead uncle?"
"Why did you sign every book I own, 'L. Ron Hubbard'?"
"Why is my house covered in tinfoil?"
"Why do I smell urine?"
"No, really, why do I smell urine?"