LAYOFF: High profile tech sector layoffs, from Amazon to Twitter, have surged to 135,000 globally at 850 companies and investors are worried about a white collar-led recession. This is unlikely. The sector employs too few, is still hiring, and the layoffs are their own idiosyncratic drivers. The tech sector is seeing a double whammy of normalizing post-pandemic growth and sharply lower bond-yield driven valuations. ‘Tech’ is over a third of the S&P 500 index but only 3% of the US labour force in another stark reminder that stock markets are not economies.
DON’T WORRY: The US jobs market is slowing but tech is not a good ‘canary in the coalmine’, for several reasons. 1) It doesn’t employ many people, at only 3% of the US workforce, though they are well-paid at over $100,000. Amazon’s much hyped 10,000 layoffs is only 1% of its total workforce. 2) Other tech firms are still hiring. The latest Challenger, Gray & Christmas job cuts reports shows tech neck-and-neck with autos this year at 28,000 layoffs, but with nearly twice as many announced hiring plans, at 50,000. 3) Tech has not usually been a good lead economic indicator. Latest US payroll growth was 260,000. The problem is too strong – not too weak – labour market demand.
UNEMPLOYMENT: But a softening US labour market is coming and is key to helping bring inflation back to the Fed’s 2% target. Unemployment is up from its cycle low at 3.5%, payrolls growth is now clearly slowing, and US Google searches for ‘job cuts’ have surged to an eight year high (see chart). This does not always translate to job losses but will dampen consumer spending. A typical ‘cyclical’ economic downturn sees a 2.3pp unemployment rate increase, whilst the Fed is forecasting a more benign 0.9pp rise. Either is painful in context of a workforce of 158 million.
Ben Laidler, eToro
