Meta is laying off 13% of its staff, joining other big tech giants that have cut staff or paused hiring amid low growth this year.
But while news of the Silicon Valley layoffs has added to fears of a recession, some experts say they merely reflect a transition in the economy. Tech stocks may have been on the downswing – however, there has been a surprising rebound in the manufacturing industry.
“There’s some thinking that this is a major shift from a high-growth, technology-based type of economy to a more manufacturing economy,” said Christopher Kayes, a management professor at the George Washington University School of Business.
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Big tech companies are laying off employees in an effort to cut costs
Meta CEO Mark Zuckerberg said in a letter to employees on Wednesday that he had anticipated steady revenue growth and significantly increased the company’s investment following the onset of the COVID-19 pandemic.
“Not only has online commerce returned to previous trends, but the macroeconomic downturn, increased competition, and loss of advertising signals have caused our revenue to be lower than I expected,” Zuckerberg wrote.
Meta reported a second straight drop in its third quarter earnings in October – and forecasted another drop for the fourth quarter as well.
Other tech giants are facing similar issues and are either freezing hiring or laying off staff in an effort to cut costs. Twitter is expected to have Lay off half of his workforceWhile Apple and Amazon have paused Hiring for many roles.
Kayes notes that some of these companies may have previously over-hired due to aggressive growth expectations that “never materialized.” Big tech has seen huge gains over the past decade, but high inflation, rising interest rates and fears of a recession could dampen customer demand this year.
“I think it’s a turning point in the growth of the tech industry,” Kayes said. “The expectations for growth in many of these tech stocks – Metaverse, social media – were just sky high. And now those expectations are really coming back to Earth.”
The combined value of mega-cap tech companies will drop by $4 trillion in 2022, according to Bank of America.
What does this mean for the US economy?
Kayes doesn’t believe layoffs and slow growth in big tech are necessarily leading to a recession — but adds that if there is an economic downturn, it won’t be reflected in the labor market.
“Some would suggest that technology will be the domino that starts to fall and that will be representative of the broader economy,” Kayes said. “I tend to think that the economy will easily absorb these jobs.”
He pointed out that the labor market is still strong – the latest government data shows the US added 261,000 jobs in October – and there are plenty of openings for laid-off tech workers to apply to.
However, he also believes the market could shift gears, with higher demand for manufacturing. Manufacturing grew by 32,000 jobs last month – and now provides 137,000 more jobs than before the pandemic.
“There are several chip manufacturers that have announced very large investments in the United States. That will be 50,000 to 60,000 jobs over the next five to 10 years.
IBM and Micron both 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 chip manufacturing in New York.
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This article provides information only and should not be construed as advice. It is provided without any guarantee.