A recession caused by the tech sector is unlikely

Layoffs in the largest companies in the technology sector, such as Amazon and Twitter, have grown to 135 people worldwide in 000 companies, and investors fear a recession caused by unemployed white collars. It is unlikely. This sector employs too few people, it still employs, and the layoffs are individual in nature. The tech sector is experiencing a double wave of post-pandemic growth normalization and sharply reduced bond-based valuations. The technology sector accounts for more than a third the S&P 500 indexbut only 3 percent. of the US workforce, another stark reminder that stock markets are not the same as economies.

Let's not worry

The U.S. job market is slowing, but technology is not an appropriate recession warning sign for several reasons. First of all: it does not employ too many people – only 3% of them work. of the American workforce, although workers in this sector are well paid. The widely commented 10 layoffs at Amazon are only 000 percent. all employees of this company. Second, other tech companies are still hiring. Latest Challenger, Gray & Christmas report – a global outplacement and career change company based in Chicago – on job cuts, shows that technology companies are on par with automotive companies this year (28 layoffs), but announced almost twice as many plans to hire (000 positions). Third, the tech sector is usually not a good economic indicator. The last increase in wages in the US was 50. The problem is too strong - not too weak - demand in the labor market.

Unemployment

However, a weakening of the US labor market is coming and is a key factor in bringing inflation back to the 2% target FED. Unemployment has risen from its cycle low to 3,5 percent, wage growth is clearly slowing, and searches in Google slogans on "job cuts" reached an eight-year high. This does not always translate to job losses, but it will dampen consumer spending. A typical “cyclical” economic downturn causes the unemployment rate to rise by 2,3 percentage points, while the Fed forecasts a more moderate increase of 0,9 percentage points. In the context of a workforce of 158 million, both are painful.

About the author

Ben Laidler - global markets strategist in eToro. Capital investment manager with 25 years of experience in the financial industry, incl. at JP Morgan, UBS and Rothschild, including over 10 years as the # 1 investment strategist in the Institutional Investor Survey. Ben was the CEO of the independent research firm Tower Hudson in London and previously Global Equity Strategist, Global Head of Sector Research and Head of Americas Research at HSBC in New York. He is a graduate of LSE and Cambridge University, and a member of the Institute of Investment Management & Research (AIIMR).