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Should We Be Concerned About The Growing Wave of Layoffs?

The increasing number of tech layoffs, coupled with historically low unemployment rates and overarching economic apprehensions, is a topic often overlooked. However, the current optimistic sentiments might undergo a significant transformation in the near future.

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You may have come across recent headlines regarding mass layoffs, and it's indeed a significant economic concern at the moment. Numerous major tech companies have recently announced hefty workforce reductions.

A few days back, eBay made an announcement that they’re cutting 1,000+ jobs, which equals around 9% of its full-time employees. This week, Business Insider, Wayfair, SalesForce and many more announced thousands in layoffs, and even just a few weeks ago, major players such as Google, Amazon, and Twitch also revealed plans for significant job cuts.

Companies often lay off workers for a few main reasons. One is when the economy slows down, so there's less demand for their products or services. This means less money coming in, so they cut jobs to save money. Another key reason is when a company hired a lot of people but realized they may not need everyone. With the trillions injected into the economy over the last few years, some companies hired more than they actually needed. Now, we’re headed back to reality.

The Impact on the Wider Economy
Besides affecting individual workers, job layoffs can create a ripple effect on the broader economy. When many people lose their jobs, it can result in lower consumer spending, affecting businesses that depend on consumer purchases. Additionally, layoffs can contribute to a decrease in tax revenue since fewer individuals are employed and contributing to tax funds. Adding to the complexity, a decline in employment rates may lead to increased demand for public services, putting further strain on economic resources.

Almost every historical recession has been preceded by widespread layoffs, with notable examples in recent history being the dot-com bubble of the 2000s and the Great Depression of 2008.

While mass layoff events are a definite sign that we are entering a recession. We elaborate further later on about how the low unemployment rate is actually a precursor to this, which many people may not be aware of. We’re entering that final phase currently.

The Trend of Gradual Workforce Reductions

The job market in the United States is undeniably facing a mix of challenges, including ongoing economic uncertainty, the rise of artificial intelligence, and companies dealing with the aftermath of their hiring sprees during the pandemic.

In 2023, we experienced a significant increase in job layoffs. Although many major companies announced substantial layoffs in January 2023, this number decreased as the year progressed. January, being the beginning of the year, is typically when employee layoffs are most common. This figure could have increased, but the overall economic landscape in 2023 swiftly shifted from fear to greed, especially with a slight cooldown in inflation. The year also ended with higher than expected economic growth (3.3% annual pace).

However, it's crucial to recognize that this doesn't guarantee a repeat in 2024. Many analysts at J.P. Morgan, BlackRock, and Goldman Sachs are cautioning that a synchronized global recession could be on the horizon, potentially striking before the close of 2024 - And we agree.

It's worth noting that while last year had a higher numbers of job layoffs and no recession, there's a concern that things could still worsen. Overall, the job market in the past year and the current year combined have witnessed more layoffs than any other time period in modern history, signalling a broader economic slowdown.

2023 Company Layoffs

Full List of Current LayOffs in 2024:

1. eBay: 1,200 employees (9%)

2. Prima Wawona: 5,400 employees (after going bankrupt)

3. CoMerica Bank: 250 employees

4. TikTok: 60 employees (in their sales department)

5. Vroom: 800 employees (shutting down operations)

6. Riot Games: 530 employees

7. LA Times: Nearly 100 employees (25%)

8. Google: 225 employees (in New York)

9. Lockheed Martin Space: 800 employees

10. SAP: 8,000 employees

12. The Messenger: 24 employees (35%)

13. FrontDesk: 200 employees (100%)

14. Orca Security: 60 employees (15%)

15. Lazada Group: 100 employees (30%)

16. Trigo: 30 employees (15%)

17. Cue Health: 94 employees (95%)

18. NanoString Tech: 50 employees (9%)

19. BenchSci: 70 employees (17%)

20. Pitch: 80 employees (67%)

21. Flexe: 99 employees (38%)

22. NuScale Power: 154 employees (28%)

23. Flipkart: 1,100 employees (5%)

24. Unity: 1,800 employees (25%)

25. Humane: 10 employees (4%)

26. Rent the Runway: 37 employees (10%)

27. Uber Freight: 40 employees (80%)

28. Nevro: 63 employees (5%)

29. Branch: 85 employees (14%)

30. Twitch: 500 employees (35%)

31. Instagram: 60 employees (5%)

32. BeamBenefits: 74 employees (48%)

33. IAC: 330 employees (75%)

34. Sisense: 60 employees (13%)

35. Audible: 100 employees (5%)

36. Inmobi: 125 employees (5%)

37. Discord: 170 employees (17%)

38. Playtika: 300 employees (10%)

39. New Work SE: 400 employees (85%)

40. GrabCAD: 13 employees (39%)

41. Veeam: 300 employees (35%)

42. First Mode: 48 employees (20%)

43. SonderMind: 49 employees (17%)

44. Sirplus: 60 employees (20%)

45. YouTube: 100 employees (5%)

46. Amazon: 30 employees (0.02%)

47. Wayfair: 1,650 employees (13%)

48. SolarEdge: 900 employees (16%)

49. Business Insider: 10% of workforce.

Times are Changing, Be Prepared or Be Replaced.

It's evident that the times are changing, and companies that fail to adapt to the new competitive landscape, continually making errors in their judgment, are destined to be replaced. To me, this signals that the competitive landscape is expanding, and we're already seeing this happen across the media industry.

Thousands of employees at many mainstream media outlets, such as Business Insider, New York Daily, Paramount, and L.A. Times, have been laid off, and don't forget about Buzzfeed, which has already gone bankrupt.

Last Friday, the well-known Sports Illustrated also announced that they are laying off every single employee at the company, quickly sparking fears over the state of their business.

This magazine was once known as the "bubble of sports journalism," but has now dwindled down to a near-bankrupt firm, marred by dozens of scandals, including the use of AI-generated content and lies, which led to the revocation of their licenses.

The New York Times even noted that they are not hopeful for a turnaround: "If Sports Illustrated even survives in some form, it will be severely diminished," wrote Kevin Draper and Benjamin Mullin.

Unemployment Rate

There is no denying that the job market has been relatively robust over the last 12 months. For many, this has been a source of optimism for many Americans in recent years, contrasting with the challenging times of the COVID Crisis.

With the unemployment rate consistently below 4%, it appears to be good news. However, these positive job market indicators suggest that the economic cycle is closer to its end, potentially leading to a recession and bear market. It's during times of optimism and greed that the risks for a downturn are at their peak. With the stock market surging to all-time highs daily, I feel that we will see a quick reversal in sentiment later this year.

Historically, when the U.S. unemployment rate dips below 4%, recessions tend to follow. Achieving an unemployment rate under 4% is rare and typically occurs after a prolonged economic expansion. At this point, the economic cycle is mature, the job market is tight, and concerns about inflation emerge. The Federal Reserve responds by steadily increasing interest rates, ultimately contributing to the conclusion of the economic cycle.

According to Nicole Smith, chief economist at the Georgetown University Center on Education and the Workforce:

"The 4 percent number is not exactly a number that economists are necessarily happy with.” “What’s been happening here is, if we look historically at other times when the unemployment rate has fallen below 4 percent, it’s times where it was the boom phase just before recession or just after a major war period."

Smith went on to say:

“What we find is that the low unemployment rate is often associated with a boom phase just before a recession.” “It’s almost a precursor for a recession or a precursor for another slumping economy.

A looming recession?

As mentioned earlier, the layoffs last year started strong but subsided quickly. We believe the opposite will happen in 2024, marking a clear sign that we're heading into a recession as the economy grumbles. We're already off to a decent start, but with a week left in January, the layoff count isn't expected to surpass that of 2023.

Unlike last year, where things subsided, we expect it to gradually increase. With dozens of conflicts happening worldwide, the inflation crisis gaining momentum again, and new political chaos leaving the United States economy gripped by the 2024 Presidential Election, where voters need to choose between the old and corrupt versus the old and crazy.

Brevan Howard's top economist said the other day that he believes the U.S. is heading into a recession because of the Fed's misreading of inflation. I personally agree with this stance, and as mentioned in one of my other newsletter articles, the moment the Federal Reserve starts cutting interest rates, it’s game over.

The interest rate cuts, which will likely happen around June, are proof that the Federal Reserve overreacted in raising rates and has fears about the runoff inflation. This fear, along with the bubble that is clearly present across the entire stock market, will burst magnificently.

Lastly, as mentioned, the historically low unemployment rate serves as a key indicator that the economy is concluding its period of growth (boom) and is on the brink of a downturn (bust).

Overall, despite the news of the mass layoffs, the economy is steady as of now. But we believe this silence before the storm is leading up to a big recession, and we will witness a drastic difference to what we saw last year.

What are your thoughts on this?

Should the Mass Layoffs be cause for concern?

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