Tech layoffs are not a sign of an impending recession - Goldman

© Reuters.

By Senad Karaahmetovic

A number of tech companies announced job cuts in recent weeks, including Meta Platforms (NASDAQ:META), Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), Twitter, and Salesforce (NYSE:CRM).

Pressure is growing on Apple (NASDAQ:AAPL), and especially Alphabet (NASDAQ:GOOGL), to slash jobs and cut operating expenses to offset the tougher macro environment. Some analysts have pointed to these layoffs and are increasingly worried that they could be an early indicator of a deterioration in labor market conditions.

Goldman Sachs economists disagree. They cite three reasons why the recently announced tech layoffs are not a sign of an impending recession.

1. Tech industry accounts for a small share of aggregate employment;
2. Job openings remain well above pre-pandemic levels; and
3. Tech worker layoffs have frequently spiked in the past without a corresponding increase in total layoffs and have not historically been a leading indicator of broader labor market deterioration.

While layoffs are “inevitable”, not just in tech but also in other industries, they aren't particularly worried that such trends could be an early indicator of a broader labor market deterioration.

“We continue to expect that many laid-off workers will be able to find new jobs relatively quickly, and that the required reduction in aggregate labor demand will come primarily from fewer job openings rather than higher unemployment,” the economists said in a client note.

Finally, they remind investors that the monthly gross layoff rate is currently only 0.9% of total employment, down from an already low monthly level of 1.2% prior to the pandemic.