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Hardly a day goes by without mass layoffs being announced at well-known technology companies: 8,000 at Salesforce, 10,000 at Microsoft, 12,000 at Google, the largest in the company’s history, and 18,000 at Amazon. IBM and music-streaming service Spotify joined the job-chopping craze this week, bringing the total to more than 200,000 tech pink slips over the past few months. This is a warning for the economy. It is another signal that the consumer spending boom is slowing down.
The tech layoffs are unlikely to trigger an immediate wave of cuts across the economy, or even sharply raise the historically low unemployment rate. Tech gets a lot of media attention, but only 2 percent of U.S. workers are employed by tech companies — a far smaller impact on the job market than manufacturing (8 percent of employment), retail (10 percent), or healthcare (11 percent). ). .
A reality check is taking place in the technology sector that is not taking place elsewhere. Tech not only recovered quickly from the 2020 pandemic recession; it benefited from so many people being stuck at home and spending more time on devices. Americans’ desperation to order toilet paper and find distractions for their kids has been a boon for Big Tech, and the industry has responded accordingly. Amazon, for example, doubled its headcount during the pandemic, and the sector as a whole experienced a hiring frenzy not seen since the late 1990s. (Amazon founder Jeff Bezos owns The Post.) Executives said they believe the economy has changed forever and they must win the war for talent in the era of hard-to-find labor. Now the technology is going through a correction, but this isn’t the end of the industry, or even a major reckoning. It is not comparable to the magnitude of the job losses among blue-collar workers at the beginning of this century.
Where tech layoffs are becoming more of a concern is on two fronts: First, Wall Street is hailing the downsizing. Most tech companies that have announced layoffs have seen their stock prices rebound immediately. It’s a signal to other executives that this is the playbook to follow when profits falter. So far, this herd mentality has not spread beyond technology and media. In fact, the biggest surprise has been how resilient employment has been, particularly in sectors hardest hit by the US Federal Reserve’s aggressive rate hikes to fight inflation and slow the economy. Although temporary jobs are being shed, employment in the construction and real estate sectors has remained strong with no major layoffs so far.
The second concern is the impact of tech layoffs on consumer spending. For the most part, tech workers are highly paid, and their layoffs come with generous severance packages. There isn’t much sympathy for these workers, who are likely to find other work at some point. But, for better or for worse, the US economy is heavily dependent on spending by the top 20 percent. These are the workers with six-figure salaries and money to land in top restaurants and expensive seats at sporting or theatrical events, elegant homes that they pay to decorate and clean, and lavish vacations. Their spending – or lack thereof – is critical to the boom and bust of the service sector and businesses that rely on discretionary purchases such as home furnishings and appliances.
It’s not hard to see how tech layoffs are causing the elite to slow spending. Even workers who keep their jobs are expected to see lower bonuses and fewer opportunities for advancement, at least for a while. Other sources of wealth are also stagnating. Property prices are falling slightly in many markets and the major stock indices are still negative for the past year. Headlines announcing an “economic recession” only add to the more cautious sentiment at the top. What is happening now for the rich is similar to what the middle class and struggling families experienced last spring and summer when gas prices topped $5 and sentiment plummeted.
It remains to be seen how much this will harm consumption. Retail sales plummeted in December, and a Morning Consult survey shows the wealthy getting restless: “In December, top earners saw the largest decline in the net share of adults reporting household finances improved from a year earlier.” But consumption remained solid overall in the fourth quarter, according to Thursday’s gross domestic product report, even though that came before many of the country’s most dramatic layoff announcements.
Recent economic indicators, including tech layoffs, do not signal a Wile E. Coyote moment on the horizon when everything will suddenly collapse. Rather, they point to a gradual slowdown, with consumers of all income levels becoming more cautious about vacationing, dining out and home repairs. It remains to be seen whether there will ultimately be a “slow cession” or an official downturn this year. If 2022 was the year of revenge trips and exits, 2023 is shaping up to be the year of sensible spending – at home and at work.
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