Finance industry sacks staff as economy falters

T.The financial industry is starting to feel the effects of the expected recession and companies are slimming down in anticipation.

Goldman Sachs has been hit by a wave of layoffs this week, affecting more than 3,000 of the company’s workforce, or about 6.5% of its total workforce. These were Goldman’s first job cuts since pre-pandemic. Also this week, BlackRock, the world’s largest wealth manager, cut about 500 employees from payroll.

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“We’re already seeing job cuts at Wall Street firms, and there’s talk of a restructuring of the banking industry,” said Thomas Smyth, a professor of finance at Florida Gulf Coast University. Washington Examiner.

The job cuts could be the first in a string of layoffs across the financial industry and Wall Street as the country’s economic situation becomes more volatile. The Federal Reserve (Fed) has historically raised interest rates at an aggressive pace to keep inflation down (which has reached 6.5%). The action is intended to cool the economy to keep demand down, but could lead to a recession marked by rising unemployment.

The financial firms also hinted at a change in economic conditions as their year-end earnings reports were released on Friday morning.

JPMorgan Chase CEO Jamie Dimon says there are still many uncertainties ahead into the new year, especially due to headwinds from war in Ukraine, inflation and the Fed’s ‘unprecedented’ tightening cycle. The bank expects the macroeconomic outlook to weaken slightly “reflecting a moderate recession in the core case”.

Bank of America Chief Executive Brian Moynihan said on Friday that the recession is worse than expected, including the unemployment rate rising to 5.5% this year from 3.5% now. He said he was preparing for a recession.

“Our baseline scenario assumes a mild recession. ,” Moynihan told investors.

After a year of layoffs at tech companies, even though most other parts of the labor market have proven resilient, increasingly dark skies are coming for banking and finance.

In 2022, more than 90,000 workers in the tech sector will be laid off in the US, according to a follow-up study. Crunchbase NewsTesla, for example, implemented a hiring freeze last month and will reportedly implement a series of layoffs next quarter. Ride-sharing giant Lyft told staff in November that it will cut about 700 jobs as it bolsters its business in the face of a slowing economy heading into 2023.

Payments company Stripe has announced it will lay off more than 1,000 employees, about 14% of its workforce. Amazon has laid off more than 10,000 of her employees from corporate offices and announced a hiring freeze.

In addition to dark clouds looming over the economy, Smythe said tech jobs and now financial firms have been hit by the lingering effects of the pandemic that began nearly three years ago. explained.

He said that during a typical recession, Wall Street companies would ultimately be hit like any other as funding dried up.

“But of course the pandemic was fundamentally different from all the free money available. I noted that the level of staff increased during this period.

But now, as the country emerges from a zero-interest-rate environment and faces the possibility of a recession, financial and technology firms that grew significantly during the loose monetary policy are being forced to offload staff, a trend that is likely to continue. is expected to accelerate. As 2023 passes and current employment levels become unsustainable.

One of the key considerations for the sector is the next Fed meeting at the end of the month. Central bank officials will consider and decide how much to raise interest rates. Most investors hope the Fed will slow rate hikes to avoid job losses.

The central bank’s interest rate target is now 4.25% to 4.5%, the highest since before the 2008 financial crisis. According to his survey of Fed participants released after the conference, most expect the target rate to rise from he 5% to 5.25%. 2023.

While financial and tech companies are starting to see layoffs, many other parts of the labor market are doing well despite rising rates.

The economy added a further 223,000 jobs in December, the Bureau of Labor Statistics reported last week, with evidence of a serious increase in the number of people filing weekly claims for unemployment benefits, a positive indicator of a weakening labor market. not shown.

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A quarterly survey of economists conducted by Bankrate found that those surveyed see a 64% chance of a recession in the next 12 to 18 months.monthly bloomberg Economists have a roughly 70% chance of a recession, more than double the forecast six months ago.

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