Hardly a day goes by that there aren’t announcements of mass layoffs at marquee tech firms: 8,000 at Salesforce, 10,000 at Microsoft, 12,000 at Google — the largest in company history — and 18,000 at Amazon. IBM and music streaming service Spotify joined the job-chopping wave last week, bringing the total to more than 200,000 pink slips in tech in recent months. This is a warning for the economy. It’s yet another signal that the consumer spending boom is fading.
The tech layoffs are unlikely to trigger an immediate wave of cuts across the economy or even lift the historically low unemployment rate much. Tech garners a lot of media attention, but only 2 percent of U.S. workers are employed at tech firms — a far smaller influence on the labor market than manufacturing (8 percent of employment), retail (10 percent) or health care (11 percent).
There’s a reality check going on in the tech sector that’s not happening elsewhere. Tech didn’t just rebound rapidly 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 was a boon for Big Tech, and the industry responded accordingly. Amazon, for example, doubled its head count during the pandemic, and the sector overall went on a hiring spree of the sort not seen since the late 1990s. (Amazon founder Jeff Bezos owns The Post.) Executives said that they believed the economy had changed forever and that they needed to win the talent war in the hard-to-find-workers era. Now, tech is undergoing a correction, but this is not the end of the industry or even a major reckoning. It’s nothing like the scale of the blue-collar job losses early this century.
Where the tech layoffs get more worrying is on two fronts: First, Wall Street is cheering the downsizing. Most tech firms that have announced firings have seen an immediate bounce in their stock prices. It’s a signal to other executives that this is the playbook to follow if earnings start to flounder. So far, that herd mentality hasn’t caught on beyond tech and media. In fact, the biggest surprise is how resilient employment has been, especially in sectors most affected by the Federal Reserve’s aggressive rate hikes to fight inflation and cool the economy. Although temp jobs are down, employment in construction and real estate has remained strong, with no large layoffs so far.
The second worry is the impact of tech redundancies on consumer spending. For the most part, tech workers are highly paid, and their layoffs are coming with generous severance packages. There isn’t much sympathy for these workers, who are likely to find other work eventually. But for better or worse, the U.S. economy is heavily dependent on the spending of the top 20 percent. These are the workers with six-figure salaries who have money to drop in top restaurants and on expensive seats at sporting or theater events, sleek homes that they pay to have decorated and cleaned, 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 layoffs in tech start to cause the elite to slow spending. Even workers who keep their jobs are being told to expect smaller bonuses and fewer opportunities to advance, at least for a while. Other sources of wealth are also plateauing. Home prices are pulling back slightly in many markets, and major stock indexes are still negative for the past year. Headlines declaring a “white-collar recession” only add to the more cautious vibe at the top. What’s occurring now for the rich is akin to what the middle class and struggling families experienced last spring and summer, when gas prices topped $5 and there was a plunge in sentiment.
How much this hurts consumption remains to be seen. Retail sales slumped in December, and a Morning Consult poll shows the rich are getting antsy: “In December, the highest earners posted the biggest drop in the net share of adults reporting improving household finances compared with a year ago.” But consumption overall remained solid in the fourth quarter, according to the gross domestic product report out this past Thursday, though that was before many of the most dramatic layoff announcements.
The latest economic indicators, including the tech layoffs, don’t signal a Wile E. Coyote moment on the horizon, when everything will suddenly drop. They point more toward a gradual slowing in which consumers of all income levels grow more cautious about vacations, eating out and home repairs. Whether there’s ultimately a “slow-cession” or an official downturn this year remains to be seen. If 2022 was the year of “revenge travel” and getting out and about again, 2023 is shaping up to be the year of judicious spending — at home and at work.