Analysis: Tech Jobs Report for October versus the headlines of technology layoffs
- Jack Rutter
- 27th October 2022
Only last week we had the latest batch of tech layoffs at Stripe, Twitter, Lyft, Opendoor, Dapper Labs and Chime. Additionally Apple and Amazon paused hiring (Source: All-in Podcast Episode 103).
The sentiment of tech investors Chamath Palihapitiya, Jason Calacanis, David Sacks and David Friedberg were all very bearish for tech businesses this week in their latest episode of the All-in Podcast. They expect layoffs to accelerate and up to 2 years of a recession (!) all because of a new economic reality of higher interest rates for longer, as outlined by Jerome Powell, the Federal Reserve Chairman last week.
And then this morning Meta announced 11,000 layoffs, right now the pain is real for many people in the tech sector and in the headlines.
Whilst this news is worrying and our sympathies go out to those who have lost their jobs, how should we understand this news in the context of the US jobs report?
Like last month we will look at the structural factors that are driving the US labor market and specifically dig into the data for the tech market via the monthly Tech Jobs Report provided by Comptia to see how we can contextualize the recent headlines.
HOW IS THE US LABOR MARKET AS A WHOLE?
As in last month’s review of macroeconomic conditions we looked at the Labor Force Participation Rate, Private Sector Quits Rate, Private Sector Employment Cost Index and US JOLTS/Total Unemployed Ratio to get an idea of the structural drivers of the labor market.
The data told us that the US labor market was booming with fewer workers than pre-COVID, the cost of employment for employers was higher than ever and workers felt comfortable that they could quit their job and find a better paid one.
So what does the October data say?
The Labor Force Participation Rate dropped 0.1% between October and September. In October it was 62.2%, however in September it was slightly higher at 62.3%, meaning that in October there were less people in the labor market. Whilst it is only a small move it is still less labor supply, which usually points to higher wages because employers have a smaller pool of workers to hire from.
Since 2008 the labor force has been shrinking in the USA, and post COVID is struggling to get back to the levels it was at before the pandemic. This is a great visual representation of how the labor market has reduced in size, and thus played a part in pushing up wages.
Private Sector Quits Rate was updated on November 1st and shows that quits were still at very elevated levels compared to previous highs in 2006 and then in 2019. Clearly the trend line down since the highs of November 2021 tells us that people are probably much less confident about finding another better job than they were.
The Private Sector Employment Cost Index was updated for Q3 in late October and it showed employer costs continue to increase. So whilst people are moving around less costs are still going up.
In a recent conversation with a potential partner at a US technology company, I was told that they had provided a significant wage increase to all members of staff to incentivize them to stay. Could this anecdotal evidence be happening across the board?
The US JOLTS/Total Unemployed Ratio also unexpectedly ticked up in October from 1.7 jobs for every unemployed person, to 1.9 jobs, which surprised many commentators. Former Secretary of the Treasury for President Clinton and Director of NEC for President Obama, Larry Summer’s summed it up via his Twitter account.
So all in all structurally the US labor market looks strong, and as Larry Summer’s points out for wage inflation to start coming down there is a long way to go.
Now let’s look at technology.
HOW DOES THE TECHNOLOGY SECTOR COMPARE TO THE WIDER LABOR MARKET?
In their October review of the Jobs Report from the Bureau of Labor Statistics, Comptia’s analysis revealed that “tech companies added 20,700 workers in October, the 23rd straight month of job growth. Industry employment has increased by 193,900 in 2022, 28% higher than the same period last year.” (Source: Comptia Jobs Report published November 2022)
The strongest growth was seen in IT and Custom Software Services which has added 2.4m jobs in total this year and 8,800 in October. PC / Semiconductor & Components Manufacturing added +5,400 in October, whilst Telecoms has added 661,300 jobs in total for the year it dropped by 1,300.. Information Services +6,800 and Data Processing & Hosting added 1,000 in October too.
National unemployment rate went from 3.5% to 3.7% so a slight uptick, whilst the same occurred in tech.
“The data is roughly in line with expectations,” said Tim Herbert, chief research officer at CompTIA. “Tech hiring activity remains steady, but there are undoubtedly concerns of a slowing economy.” (Source: Comptia Jobs Report published November 2022)
Over the last week we saw a lot of negative sentiment around the concerns mentioned by Herbert. As already discussed, the All-In podcast was very vocal about what fate the tech labor market might suffer citing an uptick in the number of companies making layoffs, which came true in the case of Meta.
However when we look at the number of jobs added and the structural forces at play in the US economy overall is it as bad as they say?
Yesterday we were able to follow up with Jason Calacanis, one of the Al-in team via his “This Week in Startups” podcast with Molly Wood. In it he suggested Meta layoffs could see a bottom in the Meta stock and the beginning of the rebuilding of healthier Meta businesses.
Ok great that’s the stock, what about the employees?
They also highlighted that traditionally the tech industry when there are layoffs, people are able to get hired somewhere else, especially people that can code.
“Tech workers, they are so desirable on a global basis….. if you are an engineer and you get laid off you will receive four offers tomorrow, however if you are a sales or marketing executive…. it could be quite different.” (Source: This week In Startups Podcast: Episode 1606).
WHAT DOES THE JOBS REPORT TELL US ABOUT JOBS POSTED IN OCTOBER?
Compared to the September data, October saw an increase in the number of total job postings in the tech sector. The 23rd straight month of overall job gains. In the context of all the layoffs we identified in the Statista image highlighting “Mass Tech Layoff Wave Rises Again”, this suggests the labor market is very strong, like the overall US economy.
Software Developers and IT Project Managers saw the biggest increases month to month with 2,517 and 1,373 incremental posts respectively.
Overall work from home job postings increased too, although there were slight reductions in Software Developer numbers, whilst there were the largest increases in Project Management, Network Engineers, Systems Analysts and Systems Engineers.
Emerging Tech continued to be approximately 30% of total job postings, which shows strength in the likes of IoT and AI etc. These are areas we think those developers looking for a change should shoot for, we believe they are going to become more and more important going forward.
OUR CONCLUSIONS?
Over the last week we have seen an acceleration in the layoffs in tech, with today’s news about Meta laying off 11,000 employees very significant. If Google were to join Meta in laying off staff then it would increase the pain further.
Additionally as highlighted by the All-in podcast over the weekend 5% interest rates for the whole of 2023 could cause real problems for startups that are not profitable as their historical funding sources are incentivized to park their money elsewhere.
Despite this the October jobs report was inline with expectations and added 20,700 workers, which was the 23rd straight month of job growth. Additionally the number of open positions increased, which signaled increased confidence in employers, with the biggest demand increases for Software Developers and IT Project Managers.
Just like last month Emerging technologies were over 30% of total job postings with 98,769 of 113,132 focused Artificial Intelligence (AI).
So whilst there is cause for concern, there is lots of positive data out there too. It’s also worth remembering that the structural macroeconomic factors we covered were also a big factor. The US Labor Force Participation Rate has fallen approximately 4% since 2008 and is still well below Pre-COVID levels. Less workers = more competition and higher wages, it’s the fundamental law of supply and demand.
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Bibliography
Bureau of Labor Statistics Employment Situation Report
St Louis Fed Total Private Sector Quits Rate
St Louis Fed Employment Cost Index for Private Industry workers in all industries and occupations
Comptia Jobs Report published November 2022
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