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Layoffs and hiring freezes at big tech raise recession fears

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Big Tech is preparing for an economic downturn and an uncertain future. This, in turn, causes even greater economic concern.

The biggest tech firms, most of which will report quarterly earnings next week, have given recent hints that they are on the low end. News of layoffs and hiring cuts has become commonplace in Silicon Valley. Startups say capital is running out. Workers are notified that businesses are changing.

Meanwhile, Twitter’s long-running bad romance with Elon Musk has floundered in court and the outcome is unclear, as the company pointed out when it released disappointing numbers on Friday. Amazon is facing a growing labor movement and Facebook is facing a new advertising climate. Regulators at home and abroad are threatening to crack down on the industry as a whole.

Cracks in the labor market

Shares of the social networking site Snap fell nearly 40% on Friday, a day after the company reported worse-than-expected earnings growth and declined to provide guidance on future earnings due to “operating environment uncertainty.” Netflix this week echoed factors such as “sluggish economic growth” as it lost subscribers.

And analysts predict that numbers released next week by Amazon, Microsoft, Google, Facebook and Apple could be the biggest signal of how these companies will approach the months ahead. As early as this week, Bloomberg reported a slowdown in Apple’s hiring and spending – a measure of how much consumers are willing to spend – news that helped drive major stock market indices down.

“The market is looking at it and basically the logic is, ‘Oh shit, if they’re doing this, what about the ones who aren’t that strong?’ said Tom Essay, president of Sevens Report Research. “And what do they foresee that everyone else doesn’t see?” ”

Meta spokesman Tracey Clayton said the company will continue to make changes to some parts of its business due to the broader economic environment. Apple and Amazon did not respond to requests for comment. Google, Twitter and Snap declined to comment. Amazon founder Jeff Bezos owns The Washington Post.

The hiring freeze and pessimistic forecasts from tech companies stand in stark contrast to companies’ traditionally bulletproof reputation for unhindered growth, raising concerns among some Wall Street economists and investors. Over the past decade, tech companies have exploded, employing tens of thousands of workers and amassing massive cash reserves through ever-increasing profits. Stock prices of firms like Amazon, Microsoft, Apple, and Google continued to skyrocket, dominating the stock markets and making many investors rich.

As one of the most valuable companies in the world, they also have a huge impact on how the economy is perceived, in part because of the nature of their business, which relies on consumer clicks and spending. Any drop in demand for toilet paper sold by Amazon, Tesla, or iPhones, and fewer ads bought from Instagram or Google search to try and sell people new shoes or headphones, is bound to cause concern in other areas.

For months, tech has been signaling to investors that boom times are ending — Amazon was one of the first tech giants to warn earlier this year that it had hired too many warehouse workers and realigned itself in anticipation of higher consumer demand, which instead began to wane. because of the coronavirus. lockdowns have been lifted and habits have emerged from pandemic regimes.

Google CEO says company will cut hiring due to economic conditions

Tesla reported higher-than-expected earnings on Wednesday, but even during that call, analysts were questioning CEO Elon Musk and other executives about a potential economic downturn. Earlier this summer, Musk said he had a “very bad feeling” about the economy and expected the automaker to cut its workforce by about 10 percent.

“We need to be more adventurous, work with more urgency, sharper focus and more hunger than we showed on sunnier days,” Sundar Pichai, chief executive of Google’s parent company Alphabet, said in a memo to employees last week. The company will cut back on its frantic hiring pace, he said, and new hires will be focused on engineering and other technical roles. “Improving the efficiency of the company depends on all of us.”

Earlier this year, Facebook reported a decline in daily users for the first time, which, combined with increased competition, a lower revenue forecast and headwinds in the advertising business, sent its stock prices plummeting. The company’s shares have fallen by 50 percent in a year. And Facebook last week ordered its technical managers to weed out low-performing employees in the face of the economic downturn. “If the direct report is not working or not working well, he is not the one we need; they are failing this company,” the head of the company’s development department wrote in a memo.

Microsoft recently removed public job listings from the Internet, Bloomberg reports.

Market experts say it could become a self-fulfilling prophecy if other companies immediately respond to Big Tech’s weakening by tightening up their own businesses. But the steps are not precise – many believe that technology is preparing for an economic downturn, rather than panicking about a sharp drop in business indicators.

“Some see this as a positive thing because companies are becoming more disciplined,” said Christina Hooper, chief global market strategist at Invesco.

Mixed economic reports raise questions about recession risks

Big tech has also been more successful than many industries during the pandemic, giving them more room to fall.

“It didn’t lose as much of its workforce during the pandemic, so it didn’t have the same shortage,” Harvard economics professor Jason Fuhrman said. “So in a way it’s not surprising that as the economy looks like it’s heading for a tougher patch, they need to recalibrate.”

And despite widely expected poor results next week, many companies have already lowered expectations enough that earnings may not be as bad as feared, analysts say.

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Small tech firms have been sounding the alarm for months now, new venture capital investment is slowing, and many startups are announcing layoffs in the spring and early summer.

Other economic indicators give a mixed picture of exactly where the economy is heading. Americans are pessimistic about high prices, but they spend their money anyway. Hiring rates are not as high as they were a few months ago, but they are still far from completely drying up. Some economists and financial analysts are still predicting a recession later this year or in 2023, although that doesn’t mean it will be as painful as the one that followed the 2008 financial crisis.

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Some cutbacks in the tech industry have been brewing for a long time, and new investment money has been too available for so long that some companies have bloated with resources they didn’t necessarily need, said Doug Clinton, managing partner at tech investment firm Loup. Enterprises.

“When the world changes and capital gets tighter, everyone looks and says, ‘We might not need as much staff as we thought,’” Clinton said. “We were in boom times, now we’re going down the roller coaster in harder times.”

Kelsey Cozad, a marketing specialist in Columbus, Ohio, was fired this month when medical startup Olive cut hundreds of employees after admitting its “rapid growth and lack of focus” had strained the business.

Kozad immediately started looking for a new job and said she got a good response. “There are a lot of people who are swimming in the waters looking for work,” she added.

Across the economy, job postings are mostly holding steady, according to the Indeed job posting site. But in the last four weeks alone, software engineering job openings have fallen by more than 12 percent, according to an analysis by Indeed economist Ann Elizabeth Konkel. The labor market is generally strong, she said, but the demand for technical workers is declining slightly.

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Overall hiring has fallen to its lowest level since December 2021, writes LinkedIn economist Guy Berger, “suggesting tightening financial conditions and lower demand could finally hit the US job market.” He noted that technology was particularly hard hit.

Big Tech has been “spending money like drunken sailors in terms of hiring over the past few years,” Wedbush analyst Dan Ives said. “I see it more as a fix, a stiffening around the edges.”

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