Meta is laying off 13% of its staff, joining other tech giants that have cut staff or suspended hiring amid weak growth this year.
But while news of massive Silicon Valley layoffs has added to recession fears, some experts say it’s merely indicative of a transition in the economy. Tech stocks may have fallen – however, there was a surprising rebound in manufacturing instead.
“Some think this represents a major shift from a kind of high-growth, technology-based economy to a more manufacturing economy,” says Christopher Kayes, professor of management at the George Washington University School of Business.
Big tech companies are cutting employees in an effort to cut costs
Meta CEO Mark Zuckerberg said in a letter to employees on Wednesday that he anticipated continued revenue growth and significantly increased the company’s investments after the onset of the COVID-19 pandemic.
“Not only has online commerce returned to earlier trends, but the macroeconomic slowdown, increased competition, and loss of ad signal has caused our revenue to decline from what I expected,” Zuckerberg wrote.
Meta reported a second straight decline in third-quarter earnings in October — and also forecast another decline for the fourth quarter.
Other tech giants are facing similar issues and are freezing hiring or cutting staff in a bid to cut costs. Twitter is estimated to have laid off half of its workforce, while Apple and Amazon have suspended hiring for many positions.
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Kayes notes that some of these companies may have already been overhiring due to aggressive growth expectations that “never materialized.” Big tech has seen profits soar over the past decade, but high inflation, interest rate hikes and recession fears may have dampened customer demand this year.
“I think this is a turning point in the growth of the tech industry,” Kayes says. “The growth expectations for many of these tech stocks — Metaverse, social media — were just sky-high. And now those expectations are really coming down to earth.”
The combined value of mega-cap tech companies fell $4 trillion in 2022, according to Bank of America.
What does this mean for the US economy?
Kayes doesn’t believe the layoffs and slow growth of big tech necessarily point to a recession, but adds that if there’s an economic downturn, that might not be reflected in the job market.
“Some are suggesting that technology is going to be the first domino to fall and that’s going to be representative of the broader economy,” Kayes says. “I tend to think the economy is going to absorb those jobs very easily.”
He points out that the job market is still strong — the latest government data shows the United States added 261,000 jobs in October — and that there are plenty of opportunities for laid-off tech workers.
However, he also thinks the market could shift gears, with increased demand for manufacturing. The manufacturing sector increased by 32,000 jobs last month – and now provides 137,000 more jobs than before the pandemic.
“There have been several chipmakers that have announced very large investments in the United States. This will represent 50,000 to 60,000 jobs over the next 5 to 10 years.
Both IBM and Micron have announced multi-billion dollar investments in manufacturing this year. The former plans to develop and manufacture semiconductors, mainframe technology, artificial intelligence and quantum computing, and the latter has pledged up to $100 billion for chipmaking in New York.
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