Tech sector layoffs warning sign of broader job losses

tech companies aWorker layoffs have begun and are a warning sign of more widespread layoffs across economic sectors over the next year.

While most industries experienced a strong labor market in 2022, the tech sector has been dragged down by disappointing stock performance and fears that the economy could slip into recession in the coming months. starting. On the other hand, the overall labor market remains very resilient and most economists do not expect it to continue amid past and future Federal Reserve rate hikes.

Tech trends to watch in 2023

The US will lay off more than 90,000 workers in the tech sector in 2022, according to Crunchbase News tracking. Tesla, 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. Meta, meanwhile, announced last year that it would cut more than 11,000 jobs in the largest round of cuts in its almost 20-year history.

Just last week, Salesforce announced it would cut a tenth of its total workforce as the economy continues to deteriorate. In a message to employees, CEO Marc Benioff wrote that too many people were being hired during the pandemic and the economic environment is currently “challenging.”

“We are hiring too many people because the pandemic has increased our revenues, leading to this economic downturn that we are facing right now. I take responsibility for that,” he told workers.

Losses are largely contained in the tech sector, but economists say news of new layoffs from other industries is to be expected. Most likely due to the Fed’s historic rate hike.

At one point, the Fed raised rates by 75 basis points four times in a row. That’s the equivalent of 12 normal rate hikes in just a few months. The central bank’s interest rate target is now 4.25% to 4.50%, 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%. In 2023, this means another 75 basis points of rate hikes.

Rate hikes are the Fed’s primary tool for keeping inflation in check, but they are also a dull tool for slowing the economy. And if the economy slows down too much, a recession can occur.

Mark Hamrick, a senior economic analyst at Bankrate, said ultra-low interest rates during much of the pandemic prompted expansion in the tech sector. And now, as economic headwinds intensify, companies are being forced to downsize. The Fed cut rates to near zero in 2020 and held them there for nearly two years.

“Money tends to flow very easily in those situations, and technology has been the target of a lot of money, including some companies that were not profitable or did not show any promise of profit.” he said. Washington Jury“The cycle is now in another phase and the economy appears to be in a slowdown phase.”

Thomas Smythe, professor of finance at Florida Gulf Coast University, said: Washington Jury Unemployment usually starts in blue-collar industries, so the phenomenon of tech layoffs that could head into a recession is unusual. He also mentioned that they are starting to publish.

But in the event of a recession, a wide range of industries, not just technology, would be affected by unemployment. The fastest job losses occur in the most interest rate sensitive sectors of the economy. For example, most experts argue that the housing market is already on the brink of recession.

Average interest rates on 30-year fixed-rate mortgages have surged from nearly 3% at the start of the year to around 7% a few weeks ago, making homebuying out of reach for many borrowers.

Existing home sales have fallen for the 10th straight month and are at their lowest level since the early days of the pandemic. Existing home sales plummeted 7.7% in November to a seasonally adjusted annualized rate of 4.09 million units, according to a National Association of Realtors report released on Friday. Sales year-on-year he fell more than 35%.

A downturn in the housing market portends a broader recession as its effects spill over into all parts of the broader economic landscape.

For example, construction workers may be laid off or have their hours reduced if construction of a new home is delayed, resulting in less income and less money to spend on things like eating out and vacationing. With less money being spent in other parts of the economy, companies in those industries may lose revenue and have to lay off and reduce their workforce. So it’s a ripple effect.

While most economists predict a recession with significant job losses, a majority do not believe it will be as severe as past recessions. During the Great Recession, his unemployment rate was 10% in October 2009, and he climbed to a whopping 14.7% when pandemic-related lockdowns began.

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Hamrick says he has reason to be optimistic. He said that if the U.S. could weather the next few years without going into a deep recession, it could avoid massive unemployment like we saw in 2009 and he said in 2020.

“The worst-case scenario is single-digit or low-double-digit unemployment, and I don’t think what we know today reflects the experiences of the past two years,” he said. He said.

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