over 1 year ago • 1 min
Tech giants have been sharpening their knives – announcing layoffs by the thousands, as slower demand for cloud or advertising carves into their profitability. This month, the number of tech layoffs has already reached 34,000, almost double the highs seen in June (blue bars in the left chart). But if you’re worried that these mass layoffs at places like Meta, Amazon, and Twitter might be an early indicator of a broader labor market deterioration and a harbinger of a coming recession, Goldman Sachs might be able to put your mind at ease.
The investment bank says there are three reasons why these layoffs aren’t that. Firstly, the tech industry may pay well, but it accounts for only a small share of aggregate employment. For context: unemployment would rise by just 0.3% if everyone employed in the “internet publishing, broadcasting and web search portal” got laid off. Secondly, the number of tech job openings is still well above its pre-pandemic level. And thirdly, tech layoffs have not historically been a leading indicator of broader labor market trends. Meanwhile, layoffs in other industries still look muted.
And if – just if – these layoffs were a sign of a coming recession, it wouldn’t be the worst thing for stocks. In this climate, bad news is good news. A softening labor market, while bad news for the economy, would potentially be good news for stock markets. That’s because it would increase the likelihood that the Federal Reserve (the Fed) would begin to ease up on the aggressive rate hikes it’s been using to tamp down inflation. Rate hikes, rather than recession fears, have been the biggest culprit for the market selloff we’ve seen this year.
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