Exactly this. Bleeding small numbers of people is absolutely terrible for morale. Everyone will be wondering whether it's their turn this week, and that will 100% have knock-on effects. If you have to do a layoff, your goal should be to make it deep enough to only do it once and allow the healing process to start.

If your goal is to avoid layoffs, the solution is to build a war chest with months or even years of runway. If you hit hard times, freeze hiring and attrition will help some as you burn through that runway. (But also be careful of piling on the same workload to fewer and fewer people!)