Tech Firms Cut Thousands Of Jobs As Labor Market Braces For Economic Downturn

Topline

Despite strong jobs data earlier in the week, employers in October announced the most job cuts in a single month since February 2021 as a growing number of executives anticipate an economic downturn, and heading into the fourth quarter, economists fear more cuts are likely on the way.

Key Facts

U.S.-based employers announced more than 33,800 cuts in October, up 13% from September and 48% from one year ago—marking the sixth month this year that cuts were higher than in 2021, career services firm Challenger, Gray & Christmas reported Thursday morning.

“We are beginning to see more job cut activity in the fourth quarter,” the firm’s Andrew Challenger said in a statement, noting the period is “historically when the bulk of cuts occur” as companies finalize annual budgets and plans.

Technology firms led the reductions last month, announcing nearly 10,000 cuts for a total of about 28,000 this year, up 162% from the same period last year, according to Challenger.

The data comes the same day payments firm Stripe, the buzzy fintech once valued at close to $100 billion, told employees of plans to cut 14% of its workforce, representing about 1,000 jobs.

“We were much too optimistic about the internet economy’s near-term growth in 2022 and 2023 and underestimated both the likelihood and impact of a broader slowdown,” the company’s cofounder brothers said in an email to staff.

Adding to the potential woes, Twitter’s new owner Elon Musk reportedly plans to layoff nearly half of the social media giant’s workforce by the end of this week in an effort to cut costs and bolster profits.

Crucial Quote

“Many companies are anticipating a downturn, and with a still-tight labor market and the Fed’s rate hikes, more cuts will be on the way as we enter 2023,” says Challenger.

Key Background

After losing more than 20 million jobs at the height of pandemic uncertainty in the spring of 2020, the labor market forcefully led the economic recovery and has remained strong despite pockets of layoffs and other sectors taking a hit as the Federal Reserve raises interest rates. Boosted by hiring among retailers and the travel sector ahead of the year-end holidays, private employers created 239,000 jobs in October, according to the ADP’s National Employment Report released Wednesday. In a statement, ADP chief economist Nela Richardson said that although the figure shows the labor market remains “really strong,” hiring was not broad-based, with manufacturing firms, which are heavily sensitive to interest rates, losing 20,000 jobs last month, for example.

What To Watch For

The Labor Department’s monthly jobs report, which tracks employment across the public and private sectors, is slated for release Friday morning. Economists forecast the U.S. added 205,000 jobs last month, down from 263,000 in September.

Further Reading

Fed Chair Jerome Powell—Haunted By The Ghost Of Paul Volcker—Could Tank The Economy (Forbes)