In 2020, venture capital got a big boost, raising 14% more money than the previous year. As people habituated themselves to staying at home during pandemic lockdowns, the tech industry flourished and share prices climbed. Despite the economic shock, more people were still hired amid all this enthusiasm.
Yet when people started resuming their normal life patterns in 2021, companies needed to lose some of the weight they'd put on. Inflation was running high and interest rates were rising. It was therefore unsurprising when, in October, Microsoft said it would be laying off workers in many of its segments and Intel announced they would have to terminate thousands of employees, as a big drop in PC demand had impacted the latter in recent months. Netflix and Snap also said goodbye to many of their workers as they watched their share trading prices sink.
In any case, the need to trim down on costs in the present economic climate will likely continue to pressure companies to let go of staff, as will the imperative to demonstrate the willingness to tighten the reins when necessary. Join us now as we explore this issue with an eye to its influence on the arena of CFD share trading.
Professional Layoffs
Overhiring was chiefly "in areas like professional and business services, more than in leisure and hospitality", points out Bank of America's Michael Gapen. Staff employed in banking, tech, and real estate have been much more numerous than they were before the pandemic, and so face the highest risk of layoffs. This contrasts with the layoffs that took place during the pandemic itself, which were mainly focused on lower-wage sectors like hospitality and retail.
By September 2022, the US workforce had regained its pre-2020 dimensions but was made up differently. Hospitality was employing 1.2 million fewer workers than it had in February 2020, while workers in professional and business services were up by 1 million.
The US Job Market
In the first half of November 2022, we got wind of plans to fire 31,200 people in tech. Remember, though, that this sector only employs 2% of Americans, as compared with, say, hospitality, which employs 11%. While tech companies were getting rid of staff, other sectors were battling to secure the workers they needed. "At the end of the day, we have to remember that the US job market remains extremely tight", says Jennifer Lee of BMO Capital Markets.
According to Goldman Sachs, it would be a mistake to view the tech layoffs as a symptom of recession. Also, "the required reduction in aggregate labor demand will come primarily from fewer job openings rather than higher unemployment". Still, analysts expect joblessness to get worse as long as the Fed holds its hawkish path. One indication it could indeed get worse is the fact that tech companies have been choosing to let go of their recruiters, as opposed to other employees.
Looking Forward
One big tech sector has been reaping the benefits of the recent layoffs, and that is the startup. "When companies downsize, other talented people who are employed there may consider looking elsewhere, as they may not see their company as being stable", explains Prashanth Chandrasekar of Stack Overflow. It's true that startups are battling a dearth in funding in the present high-interest-rate environment, but those among them that are "in the later funding stages with viable products in the market are faring much better", says Andiamo's Patrick McAdams.
