November 02, 2022
Last Friday, the U.S. job market proved it had the right stuff in the month of July; the latest payrolls data showed that more than half a million new jobs were added in the month. Analysts expected less than half of what was reported.
The strong jobs showing has operated largely in contrast to a swarm of layoffs, largely from early-stage startups and tech companies. Data from Layoffs.fyi shows that more than 65,000 employees have been laid off from 483 startups so far in 2022, including recent layoffs from Robinhood, Glossier, Beyond Meat, Zendesk, and Blockchain.com.
Those are not the only company cutting their labor budgets, either: Corporate America is making meaningful layoffs.
Take the automotive business, one industry, for example – Ford announced just days ago that it would lay off over 8,000 employees to reduce costs and focus on electric vehicles. And in the same month, a number of other automakers made similar decisions: Rivian laid off 700 employees; Arrival dropped nearly a third of their employees, and Tesla showed more than 10% of their company to the door.
Outside of the automotive biz, the incentives to cut costs, refocus on other parts of their business, or prepare for a rainy day are equally apparent. You see it in companies committing to layoffs or hiring freezes in crypto, entertainment, software, you name it.
Microsoft, Meta, Spotify, StubHub, Robinhood, and Shopify are a shortlist of other companies putting hiring halts (or layoffs) into action – or even going as far as to lay off entire portions of their business. And as you can imagine, these layoffs are fetching headlines in spite of the strong payrolls showing.
It’s yet another bizarre contradiction from an increasingly contradictory market; a market which is in recession in spite of nearly half a million new payrolls, strong earnings from the market in Q2, and financial leaders mostly appeased by the economy’s showing. One theory for the discrepancy is surprisingly simple: a large portion of the jobs growth taking place in recent months has been from leisure, hospitality, and healthcare.
In a macro level:
During normal recession conditions, unemployment is high and economic growth slows down, so in most households, feeding and housing become priorities, leaving aside “post-war luxuries” like going on holiday. Yet, last year, almost 60% of Americans went on a getaway, compared to 44% in 2021. This year, the numbers are looking pretty similar, which might explain why last month there were nearly 100k new jobs added to the economy in the leisure and hospitality industry, the largest job generator industry this summer.
So, are folks heading to the beach? Maybe, but not quite for a pina colada treat. With increasingly more companies sticking to remote first working conditions, it seems to have created the right climate for workers to travel while arguably keeping the economy in motion. Is this the missing piece of the economic puzzle we’re in? Right when we thought it could fit, we kind of need to keep looking.
None of those new jobs added are really “tech” related. Tangentially, it’s easy to see why the contradiction is so weighty in the minds of investors: when weighing the recent layoffs from large corporate leaders (predominantly tech companies), investors might be missing the framing,
That is, in the recent history of the market, that its largest companies lead – especially those large tech companies. And for the first time in decades, some of America’s tech leaders are actually needing to release some pressure.
For any evidence of that, just match the large-cap S&P 500 against the tech-heavy Nasdaq-100.
Over the last five years, the S&P 500 has returned nearly 70%; in the same period, the Nasdaq-100 did over 125%.
Investors should consider the market conditions, but understand that every part of the market experience ebbs and flows. Right now, tech and growth seem to be weighty. On the flip, oil and gas seems to be pulling the weight of these highly-important spaces.
However, it helps to zoom out for some much-needed perspective.
Sure, stocks will always be riskier than simply holding cash or buying government bonds such as Treasuries, but the value-add that they offer is attractive enough to chase in spite of how the market is looking. For the right investor, continuing to buy stocks in spite of bad news might pay off in the long run.