Those Mass Layoffs In Tech Don’t Mean We’re Diving Into A Recession

Those Mass Layoffs In Tech Don’t Mean We’re Diving Into A Recession
Theodora Lee Joseph, CFA

about 1 year ago2 mins

When a big US data report last week showed that the economy had added a colossal 517,000 new jobs in January, it wasn’t the positive news that really shocked people: it was how far off the mark the economists’ expectations were. The number of jobs added was almost triple what they were forecasting.

But there’s a plausible explanation for how these experts could have had it so wrong – it’s what psychologists call “anchoring bias”. It’s a thing that naturally happens when people disproportionately weight top-of-mind information when making decisions. All those news alerts about tech companies laying off people by the thousands? They probably pulled economists’ expectations down, (anchoring them, if you will).

That’s why I like this chart. It tells you – really clearly – that those headline-grabbing layoffs aren’t the whole story for this job market. For one, the companies announcing mass layoffs seem to be contained: they’re generally the ones that hired aggressively during the pandemic (in other words, mostly in the tech sector). The left side of this chart shows that such companies on average grew their headcount by 41%, compared to an economy-wide average of 2.3%. You can think of the layoffs then, as simply a “mean reversion”, a return to the norm after an overoptimistic pandemic hiring spree, and aimed at reversing their deep stock price declines (right side of the chart).

Outside of the tech sector, things look better: job-finding rates are still healthy and above pre-pandemic rates in most industries, and the economy, for now at least, appears to be holding a potential recession at bay. Still, it can be tough to see that when the headlines and the data seem to conflict. And it's precisely in times like this that dollar cost averaging will serve you in good stead.



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