This is all pretty standard culling. They're just trying to scare people into recession think (i.e. don't try to negotiate a raise) and rehire cheaper outsourced or--get ready for this buzz word--"insourced" labor.
Remember, the big tech cos also increased their work force sizes dramatically during COVID, so a more aggressive reduction push is understandable.
Yes. They hire devs from the Midwest instead of major metro areas.
The term was coined during the Obama era[0] and I've seen it shopped around by a few US dev shops recently. It's also called "near shoring" or "rural outsourcing."
> Yes. They hire devs from the Midwest instead of major metro areas.
Which is great, IMO. It's time we opened the doors to more talented developers across the country rather than requiring everyone to move to a few big cities to get the best jobs.
Yes, compensation will come down relative to those big cities, but it will still be coming up for those devs outside of major metro areas (otherwise they wouldn't be taking the jobs, obviously)
I've heard "near-shoring" before but always in the context of hiring workers from Mexico or other countries further south that share time-zones with the US.
The term "insourcing" was used in the movie "The Campaign" to refer to bringing cheap Chinese labor to the US and paying them similar wages and offer same working conditions as in China to save on shipping costs.
Unless it's taken on a new meaning, insourcing is just the opposite of outsourcing, i.e. using the companies own workforce and resources for a project.
Tesla ALWAYS does 10% layoffs. Why anyone wants to work for an overrated egomanic who believes an annual 10% culling is good for the company is beyond me.
Although I do think an industry downturn is here/coming, I don't think Lyft is part of the trend. Lyft, specifically, is just a bad company. It has never made an annual profit, will never make an annual profit, and is gravely overstaffed for its operations. Liabilities are approaching assets on the balance sheet. They have to cut somewhere. They already shed their useless little autonomous driving division, and I expect them to just abandon or spin off the bike share.
I believe the bike-share is their most profitable division. Would it make sense to spin that off? It has a de facto monopoly in many markets it operates in
From my past time at Lyft, there was a much larger loss and theft issue with East Bay's bikes. Not sure if they figured that out. Used to hear about bikes regularly being pulled out of Lake Merritt.
Huh, I feel the opposite. Feels like more and more I get the "next-gen" e-bikes in Manhattan. The older gen e-bikes do feel like they are on their last legs.
This is what the other side of a hiring blitz looks like. On the ascent, company after company speculatively hired extremely expensive workers - because the surface economic signals were misleading people who should have known better. There was so much money to throw at employees that offers were being extended just to keep candidates away from competitors.
This went on so long and with such fury that employees, candidates, and CS students began to view the orgy of overspending as the new normal.
Now a normalization of economic conditions throws the entire thing into reverse. Too many fresh-faced candidates showing up with resume in hand, too many workers on payrolls doing little to nothing for wages 3-10x what they should be, too little revenue to continue business as usual, and a stock market that pulled the rug out from public companies using shares as a form of self-printed currency.
CS was already a popular bet among incoming college students, but the memory of the manic 2020-21 period have fuelled a vast flight of talent to CS majors, at least in my country. Everyone is convinced that the only way to make any real money fast is to learn how to code. The expectations are absurd - most expect to make doctor-tier salaries right after graduation (source: wife teaches at university).
By 2024, the steady drip of fresh CS graduates is going to turn into a flood.
An entire generation of teenagers saw the tech boom, the crypto boom, and the SPAC/IPO mani. Its going to color college major choices for years.
I almost feel like coding is currently what typing was 60 years ago. "Typist" isn't really a job anymore, but stenographer and transcriptionist are. Likewise, I think that coding needs to become something basically everyone can do a tiny bit of, but only a relatively smaller group do as their entire job.
almost anybody can be a coder but software engineering is super freakin' hard - and I only say this because I'm soon wrapping up my second decade of doing it. the amount of things you can't efficiently learn at school is staggering. I see young promising people focusing on 'tech stacks', 'deep learning', etc. hence missing the forest from the trees and think that it simply isn't possible to exit school as a competent software engineer. you have to really try to be one to become one and no school makes you do that. it's you.
On the other hand, it seems like technical proficiency might be going down with newer generations. Many were raised on smartphones and tablets where you just tap something and it does the thing. Devices nowadays abstract a lot of the underlying system away from the users, even to the point where apparently the newer generation struggles with the concept of files and directories.
Using a computer as a consumer is an entirely different skill set from making them. Just as most car owners barely know how their machine works besides stepping on an accelerator pedal and occasionally inserting a fuel nozzle.
Even before the smartphone revolution brought computing to global masses of all income levels, most users were not makers.
Wage inflation, interesting that the whole "fight for $15" thing literally died overnight at some point. But when you're at 40-year high for inflation, rates rise, part of what the Fed is trying to do is raise unemployment. Here you are.
This has been happening for at least the second half of the prior decade. I graduated in 2014 and that was the second year EE/CS had a significant uptick in enrollments. When I started in 2010, it was mostly the "runs Linux on the desktop" hacker-types.
Here's an interesting thing: there are other fields too. People tend to forget we need Civil Engineers, Electrical Engineers, Mechanical Engineers, Electronic Engineers, etc... This is not the end of the world. STEM professionals were switching careers because of the money and other amenities tech companies were offering (See "a day in x-company" trend on social media).
The way I see it (cynical take) is that there has been a push to get lots of people in this field just to have a bigger pool of workers and lower SWE/Dev Salaries. Heck, small companies can't compete on salary + benefits when trying to pouch SWEs/Devs. For these companies, this scenario will be a God send since they could offer lower salaries (45k ~ 70k) but with the added value of WFH. My prediction: We'll see everything ramping up again in 2024 (Prob. Q1). On the other side, tech companies will start lowering salaries, taking advantage of the uncertainty. Basically win-win for companies.
In the big picture, FAANG salaries are outliers. Boom and bust cycles come and go, and when it is booming again - circumstances can have changed.
I worked with people in oil and gas that never came back, probably making only 25%-50% of what did they did during their best years.
Finance, too. Lots of young bankers were forced out back in 08-09, and never returned.
(With that said, tech is a bit more flexible on hiring, and I don’t think a 350k engineer will have to take a 300k pay cut, finding a “normal” ~100k engineering job is very possible. Or even another FAANG job if you’re willing to keep going at it. Could take weeks, months, even years - depending on how bad the market is)
Depends on the quality of the developers you're looking to hire.
The market for the kinds of developers that command ~$350-500k is still incredibly tight. There's a reason that even though Stripe is reducing headcount by 14% engineers are mostly unaffected.
And worse, it's really hard to find good teachers, nurses, or doctors in the bay area. Frances Allen used to be a teacher because teaching was a decent profession in the 60s. Feynman's teacher can recommend amazing books about integrals, while nowadays many teachers could factor a^3 - b^3 correctly, and the physics teacher of the NASA director's son ask questions like "which is heavier, a pound or a kg" in 9th grader's physics class.
You can't "push" people into a field. I know smart people who would quite literally go insane if they had to stare at a screen all day. They don't have autism. They want to work with people not machines. So they work in healthcare.
All these companies have vastly overhired. Think of your own peers and colleagues. How many are a) utterly useless or b) competent but don't have anything to do so they spend time working on mostly pointless projects to improve their CV?
Weird to put that on the employees if you ask me. It's not like there is exactly 13% of bad employees. Or 25% of bad employees but they decide to just fire 13% for some reason.
To me, it seems quite evident, they need to reduce the spending for any reason, so they reduce the workforce. Nothing to do with useless employees. You can be shit at your job or very good, they will have a metric threshold telling them you need to go. Same at Twitter, Meta, Google, whatever.
Stop putting that on the employee who spent 3 months to get a job just to be told they wasn't useful. That's 'bad' managing all the way down, nothing to do with the employee, at all.
Maybe they fired some after and evaluation process, and than number came out to be 13%. Or maybe they laid of department X and that department just happened to be 13% of the company.
Why are you so sure the 13% was the starting place of all their thought process?
GP said they have overhired, which is definitely bad managing, or that employee aren't productive, and if >5-10% employees are non-productive that is a managing or interviewing problem as well.
But saying it has nothing to do with employee is also not correct. If someone is signing up for a company that does not manage its finance sustainably, they should expect this. And company would only overpay if they aren't focusing on cost at that moment. So for all the folks who managed to double their CTC in COVID period should be prepared for this case.
They do now, but they are looking at tomorrow. Nobody has a clear idea what is coming down the turnpike at the moment. (China economy, high inflation, Ukraine, unipolar to multi-polar world, interest rates going up, high energy costs, global warming, de-population in some countries, health care costs blow-outs due to boomers going into 65+ age range etc).
How many are a) utterly useless or b) competent but don't have anything to do so they spend time working on mostly pointless projects to improve their CV?
I hope my colleagues aren't reading this and looking at me.
One comment in the Stripe layoff thread was someone who's manager didn't get to put any input into the process.
Honestly its funny reading threads like this with people beating their chest about useless coworkers. Instead of thinking of useless coworkers and colleagues, think about what percent of the entire industry that's working on things with no hard output, no interest in profitability, banking on free money that's drying up...
If you're working somewhere with so many incompetent colleagues you think 13% layoffs is not trimming anyone useful, odds are your entire unit is in trouble.
Yeah, I should have clarified - useless doesn't necessarily mean the employee sucks at the job they're doing; it could also mean they're an expert at doing a useless job, even if the skillset could be utilized quite valuably.
I feel there's a lot of this in crypto, where you have absolutely amazing developers doing amazing code for no point.
I consider myself to be rather decent at what I do. I also know that, all things considered, I am mostly useless as an employee right know. Wjy? Because in reality my skill set is simply noy needed at the moment, nor will it be for quite some time to come. Things changed since I was hired, lucky for me current management doesn't have the stomach to announce a x % layoff, even if they should IMHO. Not that I complain so, for now.
That's when you start seeing teams get axed, though you will often have a "reorg" instead, where managers are shuffled around and then a layoff event where the ones they don't want are let go.
Unfortunately the useless and overpaid managers are often the best at brown nosing.
>" If you don't know who the useless colleague is, it's probably you!"
My problem is that I have an almost crippling sense of impostor syndrome and I undervalue my contributions constantly. I don't feel entirely useless, but I do feel like an under-performer - despite probably being an average developer in my cohort.
Fundamental attribution error: how many of your colleagues think the same of you? When it come to you, obviously the problem is the "complixities of the problem space" and "blockers" you're dealing with, but when it's someone else on some random team, they are slow because they are useless.
Wish you were right. Unfortunately, most tech companies have some decent amount of people coasting at the lowest level of effort.
My current team has 6 people. 3 are delivering at normal levels, but the other 3 complete one task per week at most. And those are tasks that take a couple of hours at most. This is happening everywhere, and is a clear consequence of overhiring.
Excellent point. This adds a different dimension to the situation, for sure. I can see that the slower crowd would keep the boat afloat while the high performers go and solve the pressing issues. I have seen it happen a couple of times. Still seems a bit wasteful to have half of a team essentially parked.
I strongly disagree. Many companies (maybe not tech companies) are posting very strong profits. Employee surveys also show people feeling the pressure of being given additional responsibilities due to labor shortages.
I suppose you could make the argument companies are both over-working their employees and over-hiring if you're willing to concede these companies are poorly managed... which I think has a kernel of truth to it.
Wouldn't this be explained by the "quiet quitting" hypothesis?
If 10-20% of the employees in an org pretty much stop working completely, then it's pretty natural that the remaining 80-90% are going to feel overworked making up the slack. Also explains why companies are laying off the dead weight resuming hiring almost immediately (like Tesla).
Quiet quitting isn't people refusing to work on the job. It's to merely work hard enough to "meet expectations". So rather than trying to be a straight-A student you only work hard enough to get Cs and Bs.
Anyway, I would say if the Quiet Quitting hypothesis is true it definitely points to a business management failure. If an employee joined your organization highly motivated and a year later feels like going above and beyond is not worth it you did something wrong.
>> Quiet quitting isn't people refusing to work on the job. It's to merely work hard enough to "meet expectations".
Office Space came out in 1999 so this isn't anything new.
That's my only real motivation is not to be hassled, that and the fear of losing my job. But you know, Bob, that will only make someone work just hard enough not to get fired.
> How many are a) utterly useless or b) competent but don't have anything to do so they spend time working on mostly pointless projects to improve their CV?
I bet the people who hired them get to keep their jobs despite failing to a) hire useful people or b) competent people that can work on useful projects and c) burning cash while d) not turning a profit because e) they are just a gambling mechanism for investors.
I absolutely will never conduct interviews for a company again if I’m going to be punished depending on how they work out. Some people interview well and their behavior on the job does not match what you expected due to a large number of reasons from team fit to personal issues.
I literally cannot name a single person like this in my entire career. Yes, less than ideal performs, but nobody that's utterly useless or spending all day on side projects.
I knew an utterly useless guy. He was good at making impression of a good programmer - read right blogs and had correct opinions. Probably reads HN and definitely knows all the fads.
It is just that, he never produced anything. I worked with him twice. They moved him between teams and both times he got absurd amount of benefit of doubt (one of the companies was firing people quickly, but not him). Anyway based on what I heard, he did nothing whole his career.
In 3 decades I think I’ve met a couple of programmers like that, but about a dozen managers and at least half of the consultants. It’s pretty hard to pull off in a position which usually has some kind of directly-measurable product.
Back in the 90's my step-father worked in a factory, and he and his buddies always joked about a guy there that never did a single lick of work.
He took a VHS camcorder in one day, and recorded the guy flipping a piece of metal over on a table a couple times, then moving the piece of metal to a new table. Repeating this over and over throughout a 10/12 hour day.
No idea if it's true, but in my mental model, remote work plays into this as well. Pre-covid, large companies were restricted to hiring the talent in their area. If there weren't enough talented people near the company, they would often end up hiring people who were under qualified, just to fill seats. Remote work made the talent pool bigger which means more qualified candidates. These layoffs are allowing large companies to lay off some of those under qualified local hires.
There will also be companies that take advantage of the current buzz around recession and use the opportunity to do a rank/yank disguised as a layoff. Then go and rehire the same amount of people.
Not my experience at all. I work for a big company and we've been under staffed for basically as long as I can remember. The default position is not enough people to do what we need to do.
If the Department of Defense & Amazon & Walmart start laying off 10-20% of staff - that would mean something. All of these tech layoffs don't even represent 1% of tech jobs so far. Let alone anything meaningful for the overall US economy.
Might get absorbed by other companies but at lower rates. The faangs, and especially meta and google, have been starving a lot of startups and less efficient companies of talent.
If your business model wasn’t profitable enough to handle all your engineers having over 250k tc it’s been a bit of a difficult market to hire and retain people in the past few years
Slowdown in inflation due to wage component of inflation falling. What, didn't you hear that the Fed was very interested in pulling on that lever? Just yesterday Powell complained about the labour market being tight, guess businesses heard him all right.
> Powell complained about the labour market being tight
No, he didn’t [1].
He justified a rate rise in a faltering economy by pointing to the labor market’s strength. Were the labor market weaker we’d be in stagflation and monetary policy would have no room to manoeuvre.
Powell has previously said that he wants higher unemployment. He believes this is the only way to decrease demand and bring down prices.
> The labor market continues to be out of balance, with demand for workers substantially exceeding the supply of available workers. The labor force participation rate showed a welcome uptick in August but is little changed since the beginning of the year. FOMC participants expect supply and demand conditions in the labor market to come into better balance over time, easing the upward pressure on wages and prices. The median projection in the SEP for the unemployment rate rises to 4.4 percent at the end of next year, ½ percentage point higher than in the June projections
> We’re never going to say that there are too many people working, but the real point is this: Inflation—what we hear from people when we meet with them is that they really are suffering from inflation. And if we want to set ourselves up, really light the way to another period of a very strong labor market, we have got to get inflation behind us. I wish there were a painless way to do that. There isn’t.
That is why the market goes down when low unemployment numbers are released. Powell will continue to raise rates until the labor market cools. He's not using the labor market to determine whether or not the economy can handle more rate increases. He's absolutely determined to increase unemployment via rate hikes.
Their goal is to reduce inflation. Increasing unemployment, is a side effect of rate hikes but ultimately, reduces demand for consumer goods thus reducing inflation.
Their goal is to keep inflation steady at a manageable rate, and to prevent any deflation at all. Since inflation indicators haven't been too reliable in the last 20 years, they were caught horribly off guard. But ideally, they would make small changes one way or the other to maintain a nice equilibrium that would keep employment levels relatively stable.
There are a ton of levers (not all under the Fed's purview). This is just how capitalism works though, others must suffer at the expense of capital. It's bad enough when the government doing the bare minimum, like trying to put a bunch of people to work to replace our crumbling infrastructure, gets decried as "socialism". Those voters must not understand (or simply not care) that voting for the same corporate interests over and over again will just lead to the working man sacrificing more to big business.
> has previously said that he wants higher unemployment
He has not. I am open to being corrected with a credible source. But every time I see this conspiracy theory, it’s based on summaries of Fed statements unsupported by the statements themselves.
> is why the market goes down when low unemployment numbers are released
Because the market is anticipating rate hikes. When inflation is low strong employment boosts the market. We just went through a decade of that.
He goes on to say that supply and demand for workers needs to be brought into balance. The goal of raising interest rates is to reduce demand for labor. He says that directly. This isn't a conspiracy theory.
> The labor market continues to be out of balance, with demand for workers substantially exceeding the supply of available workers. The labor force participation rate showed a welcome uptick in August but is little changed since the beginning of the year. FOMC participants expect supply and demand conditions in the labor market to come into better balance over time, easing the upward pressure on wages and prices. The median projection in the SEP for the unemployment rate rises to 4.4 percent at the end of next year, ½ percentage point higher than in the June projections
He's expecting the act of raising interest rates to increase unemployment to 4.4%. He's doing this to bring balance to supply and demand for labor, to ease upward pressure on prices.
He is also asked directly when he will know when to stop:
> So I will answer—I will answer your question directly, but I want to start here today by saying that my main message has not changed at all since Jackson Hole. The FOMC is strongly resolved to bring inflation down to 2 percent, and we will keep at it until the job is done. So the way we’re thinking about this is, the overarching focus of the Committee is getting inflation back down to 2 percent. To accomplish that, we think we’ll need to do two things, in particular: to achieve a period of growth below trend; and also some softening in labor market conditions to foster a better balance between demand and supply in the labor market.
He directly says he's waiting to see softening of the labor market before stopping the rate hikes.
> He's expecting the act of raising interest rates to increase unemployment to 4.4%
> He directly says he's waiting to see softening of the labor market before stopping the rate hikes
Yes, because we don’t want to ruin the labor market. Right now, rates can be raised without spiking unemployment. The Fed is trying to estimate when that stops happening.
A clear signal that the limit has been reached is the labor market actually softening. That doesn’t mean the Fed is trying to raise unemployment. It’s trying to lower inflation, and thinks unemployment may rise as a result of that, though to date it has not.
No, that's not what Powell is saying. Read this quote again:
> So I will answer—I will answer your question directly, but I want to start here today by saying that my main message has not changed at all since Jackson Hole. The FOMC is strongly resolved to bring inflation down to 2 percent, and we will keep at it until the job is done. So the way we’re thinking about this is, the overarching focus of the Committee is getting inflation back down to 2 percent. To accomplish that, we think we’ll need to do two things, in particular: to achieve a period of growth below trend; and also some softening in labor market conditions to foster a better balance between demand and supply in the labor market.
Powell says (paraphrasing slightly): "In order to get inflation under 2%, we need to do two things. 1. achieve a period of low growth, and 2. soften the labor market." Low growth and higher unemployment aren't simply side-effects of Powell's policy. These two things are explicitly stated goals.
Would it be correct to say the Fed's goal is to lower economic growth? I don't think so. It's trying to lower inflation and predicting negative, possibly necessary, side effects. But if you read that quote as saying the Fed is trying to raise unemployment, then it's also saying the Fed is trying to lower growth, which is an odd reading to say the least.
I think we're arguing over the definition of goal and side-effect.
Let's say I have a goal of running a marathon, so I decide to start jogging every day. Is my daily jogging a side-effect of my goal to run a marathon? I wouldn't say so. Rather, jogging every day is an explicit course I've set out on with the hopes of achieving my main goal. Daily jogging is a sub-goal of the main goal, if you will. This logic can be applied to the Fed. The main goal is to lower inflation, and the chosen course of action (i.e. the sub goals) are to lower economic growth and to increase unemployment.
A side-effect would be something akin to knee pain. I can't jog without hurting my knees, but having pain in my knees isn't something I explicitly set out to do.
A side-effect of Fed policy would be something like the gilt crises in the UK. Higher US rates increase yields on UK bonds indirectly. But that isn't something the Fed is actively setting out to do.
> Let's say I have a goal of running a marathon, so I decide to start jogging every day. Is my daily jogging a side-effect of my goal to run a marathon?
You can't run a marathon without your daily jogs. Inflation can be lowered without spiking unemployment. It's unlikely. Hence the Fed's messaging. But until recently the Fed forecasted a soft landing, i.e. growth and low unemployment amidst rising rates and falling inflation.
Better analogy: engine temperature. You're driving and keeping an eye on the thermometer. You see the temperature is low and so feel comfortable accelerating. The goal is getting to your destination faster. The low temperature lets you accelerate, which in turn raises the temperature. But raising the engine temperature wasn't the point. It reverses cause and effect to say your goal was to raise engine temperature. It wasn't. Engine temperature was simply a limiting factor you were paying attention to.
Using analogies is always dangerous because they're never going to be a perfect fit. But the difference between your engine analogy and the federal reserve's actions is that anemic economic growth and high unemployment is not a side effect. In your engine analogy, adding more gas and air into the engine increases the amount combustion. It's the combustion that increases speed, so in a sense increase combustion is a goal. Released heat is just a by product of the reaction. In the economy, the amount of economic activity and the amount of available labor are what drive prices, so these things are the combustion in the piston, not a byproduct.
> amount of economic activity and the amount of available labor are what drive prices
The relationship is sufficiently complex to permit e.g. falling unemployment, falling (not negative) wage growth, falling (including negative) growth and falling inflation. It's not a deterministic system.
> in a sense increase combustion is a goal
No, it's not, because the goal--reaching the destination quickly--would be accomplished equally well in an electric car with no combustion. That's the difference between a goal and an effect.
Look, I agree that theoretically it’s possible to lower inflation while keeping unemployment low. But the Fed is looking for a causal effect. They want higher unemployment because that will balance the labor supply and reduce wage growth. That’s what the Fed has said. The fact that they’re looking for a causal effect in raising unemployment means the engine analogy is not valid. There is no causal relationship between engine temperature and speed.
I think you’re falling for the no true Scotsman fallacy. We started this conversation talking about whether or not the Fed’s goal is higher unemployment. I presented an argument, in the Fed’s own words, that they plan on lowering inflation by weakening the labor pool. And your response is “that’s not really a goal.” I disagree and, and I don’t see a productive way forward for this conversation. At the very least, you should accept that this is a valid interpretation of the Fed’s own words, and not just some conspiracy theory being peddled.
Exactly. The quotes say that the Fed's goal is to control inflation, and that reduced demand for labor is going to be collateral damage. But reducing demand for labor is not the goal; controlling inflation is. The quotes do not say what im-a-baby claims they say.
> We’re never going to say that there are too many people working
I’ll admit that was a poorly-worded statement. But it still doesn’t convey the Fed targeting a higher unemployment rate. It isn’t. It’s targeting lower price growth, and keeping an eye on the labor market to avoid overtightening.
> Powell will continue to raise rates until the labor market cools.
This is entirely different from "complaining that the labor market is too tight." The Fed has nothing against a tight labor market so long as we don't have high inflation. Imagine you're a doctor and you're telling your patient that you're going to administer chemotherapy to a child until either the cancer goes away or they get too sick. Then you see protestors trying to convince laymen that you're complaining that a child is experiencing too much cell growth. That's exactly what GP is doing.
This seems unnecessarily pedantic. Powell has said he believes the tight labor market is driving inflation. It's a totally fair characterization to say "Powell believes the labor market is too tight" given his statements. In this case, "too tight" means "tight to the point of causing inflation"
"Excuse me, sir. The council is worried about the economy heating up. They wondered if it'd be possible to fire 500000. Maybe from one of the smaller companies where no one would notice..."
I don't see how what you posted contradicts what I said. I guess it all depends on how you interpret what Powell says, but him saying the labour market is overheated is a signal to the market that unless the labour market stops overheating the Fed pivot is not becoming more likely(which is all that market participants care about as of today with regards to the Fed meeting, i.e when is the pivot coming).
> him saying the labour market is overheated is a signal to the market that unless the labour market stops overheating the Fed pivot is not becoming more likely
The labor market isn’t being targeted. We have had tight labor markets with low inflation before. The Fed doesn’t spike them for the sake of it.
What’s targeted for reduction is inflation. Labor market tightness permits the Fed to respond to it, which is why it’s constantly talked about. If you are on a road trip and decide you can take a detour because you have ample gas, it wouldn’t be correct to say you took the detour to burn gas.
The conventional wisdom floating around financial news is that a recessionary period is/was expected lasting around a year. This is a way to smooth out gross revenues over that year as well as knock out some expectations on salary growth. That it all happens to be coordinated is an interesting thing to contemplate about self-fulfilling prophecy, or natural market reactions, or maybe spin wild conspiracy stories about.
The costs to explore a startup are pretty low these days. You can live anywhere (move somewhere with relative low COL), you can develop just about anything cheaply (open source, plus easy frameworks). You can work with like-minded people all over the world easily (remote work for '20-'21 made big inroads in that department).
And we may suddenly have a few tens of thousands of talented developers looking for work- maybe they'll make a startup, or maybe they'll join one where they get paid mostly in equity.
Interest rates are high, which means that investors into startups will want a bigger cut, but still have their money that they want to invest.
Overall, it sounds to me like a great time to be investing in startups.
I doubt these are at all related to Twitter layoffs, we've been seeing announcements of layoffs from tech companies a few times a week for a few weeks now.
Anyone that was around for the "Turn of the Century Crash" may find this familiar.
With all the massive scaleups, companies were becoming bloated as hell. They also became fairly sloppy with their money.
Time to pay the piper.
But unlike some bubbles, there's a real industry, here (like in the 'oughts). It's a return to a [still pretty decent] baseline, as opposed to an implosion to nothing.
In the early Web days, the money started to become silly, and people were thronging to the industry, despite having no qualifications, and no passion for the tech. They just wanted money.
Basically, they were expensive, and they sucked (sound familiar?). Most were Web developers, or around the process of creating and maintaining Web presence.
Also, some people were very, very good, and some marvelous tools came of it.
This is like the Late Devonian extinction. The table needed to be cleared off, to give rise to the new.
The company that I worked for, had survived being fire-bombed during the war, a major depression, and multiple recessions. They were absolute tightwads.
At one point, they started making a whole lot of money, and got silly.
Piper, meet company.
They have basically contracted back to what they were. Everyone is writing them off, but I'll bet they come out of the scrum, OK.
I was too young then, but did that crash have the same "everyone and their mother sees it coming and have been talking about it months before" feeling?
Cause this "crash" is surely like that – it has to be the most "expected and talked about" one in modern times...
To be sure the 2001 crash was also mixed in with 9/11 and its aftereffects. But, in general, I agree. 2001 was catastrophic for a lot of people in the broad tech domain--as in not even a sniff of work and, for many, just got a job any job doing something else. I was really lucky to get a related job at the small company someone who I had been a client of in a prior role ran. Things still got difficult over the following year but I had not so much as a nibble otherwise.
Offers were withdrawn, tons of companies went under, even the big firms like Cisco had massive layoffs.
I remember friends coming back to the university job fair telling me how bad it was out there. With 1-2 years experience they came back to our engineering job fair looking for internships and entry-level positions. Those without prospects just rode it out in graduate school. If you weren't in a position to repay student loans it was better to load up more debt and delay it a few years.
I was c/o 2003. There was a lot of slack in the entry-level pipeline as companies were recovering but didn't need to seek new graduates because there was a 3 year backlog.
It wasn't a point in time. I was laid off a couple weeks after 9/11--and there were many subsequent layoffs at many companies through ensuing weeks and months. It probably began around Spring of 2000. I was at an analyst conference around that time when Cisco reported down-earnings.
The .com crash was obvious it was going to happen, but when was the problem [1]. Companies were IPOing with no business model and no clear path to one. Imagine if the majority of the nasdaq was SPACs and crypto...yeah. I wish fuckedcompany.com was still around because it cataloged the implosion of the insanity.
[1] The market can stay irrational longer than you can stay solvent.
A ton of them do exist but run by grownups. For example, I worked for a web development company which had Petco as a client. The pets.com people were trying to get purchased and they asked us to talk with them. It was obvious that they were running way too much overhead - we’d talk with their technical team on the phone & people would outright volunteer that they didn’t have much to do and were mostly waiting for the IPO lotto tickets - so they failed but today just about everyone buys pet supplies online.
The idea was fine but they didn’t understand they were in a low-margin industry. That pattern showed up a lot, especially where things like shipping were key chokepoints. Cement.com memorably failed but you can easily order building supplies in many places because the real value is proximity and there wasn’t a high-margin business as a middleman.
You are right that DoorDash might be closer to Kosmo (and may also go under). I meant that Amazon Prime showed that a scaled up, same day delivery service could be viable and profitable
I wouldn't call Amazon Prime same day. Amazon had prime now for awhile in response to Google's Express program; these were both same-day services that delivered in 2-4 hours from order placement. Both programs were cancelled when it became clear they were unsustainable.
Plenty of people prognosticating a crash every year since 2009 but it never came. Most of us expected a long term crash in 2020 but it was a quick rebound. This year seemed like something was off but maybe just temporary due to supply chains and Ukraine, since spending and employment was still strong. I'd not say a crash is written in stone yet.
I feel like the elephant in the room here is crypto? There was some frothiness between 2009 and now, particularly around businesses with intensely negative unit economics (see: Uber, WeWork) and their sustainability. A lot of the prognostications around a crash then was specifically skepticism about these companies commanding sky-high valuations without line of sight to profitability, but at least there was some fundamental value there.
Then we started going even frothier and abandoning even the pretense of fundamentals with the crypto and NFT fad. That was a lot harder of a bubble to keep going.
My read is that the crypto bubble burst (as it very well had to) and it (along with rate hikes) triggered a general re-evaluation of tech that included all of the perennially unprofitable companies, and taking them down several pegs.
Unclear where we go from here - but IMO the skeptics from 2009 were right on their merits (even if spectacularly off on the timing), and it took an even dumber, even bigger bubble built on top of it to cause the industry to fall over.
In 2000 it was a lot more obvious that dotcom prices were completely untethered from reality. Same for home prices and handing out loans like candy in 2006.
This one is more of a general "Hey this market is too high", but nothing as concrete that's completely out of whack imo.
The .com eventually became obvious in the last year or so, but before that is was 4 years of lunches with ex-coworkers in some .com telling me "you just don't get it."
I would argue that this is not because it was difficult to see coming, but because most people have a bias that makes it difficult for them to imagine something that's "normal" abruptly coming to an end. This was the era of "I got a loan for this house in 10 minutes. I added granite counter tops, mopped the floor, and sold it for a $20k profit in 9 days." type shows.
TV is TV, but that was genuinely happening. The market was just completely broken.
The part of the housing crash that I was inferring was hidden to most was how deep the credit markets were tied up in housing, to the point where a housing bust meant banks collapsed and all money was frozen.
I was young(ish) at the time, but I imagine some knew housing wasn't sustainable. I'm not sure there were many outside the stars of The Big Short quite knew how vulnerable the entire banking system was because of housing before it all came down.
The housing crash was obvious - talk to anyone trying to buy a house in 2004 or even 2003. By 2005 or so I had friends that were getting cold called with offers of nodoc nodown interest only loans.
It wasn’t necessarily obvious that specific banks would fail but it was obvious that the big guys were playing high-risk games and were going to be left with a lot of foreclosures or writing off a lot of paper value. This was known to basically everyone in the industry, too - I briefly considered buying in New Haven in 2008 and got mortgage pre-approvals from a few banks. I had an interesting conversation with an older loan officer at a Connecticut state bank, who was the only one who didn’t approve me for WAY more than I thought reasonable and explained why very matter of factly, and noted that since his bank didn’t resell the mortgages as CDOs they had to be more careful about risk.
Oh awesome, would love to ask a few questions about your experience:
1. What did it feel like day to day as a person working in the industry during that time, and did it differ from the "bubble" period prior or more "normal" period immediately following?
2. How long after the bottom before the recovery felt "real" to you, and did you see companies / people change their behavior?
Not OP but first off I'd say that while some things feel similar, I don't think we're close to how bad it was back then if you look at the magnitude of the fall out. So take these answers understanding that things were worse back then.
1. It felt like a nuclear winter for tech jobs between 2000/2001 and 2004/2005. Jobs were available but it was way more competitive to get them and you were a lot less likely to get that dream job. You either settled for a crappier job or you changed directions. Many younger people just went back to school (get the master, law degree, etc.) as an alternative.
It felt like the party was over. All the great company perks disappeared. Traffic on freeways disappeared. The mood was very flat. It wasn't sexy being in tech like it is today. Nowadays people just talk about TC or stock. That kind of talk disappears.
2. Like I mentioned above, it was about a 3-5 year period. Again, not all situations are the same. But whenever you have large macroeconomic problems, they take time to sort out. It also depends on how quickly the downside factors resolve themselves. The longer it takes to solve those, the longer a recovery is dragged out.
It also depends on what the growth engine is for pulling things back up. Back then, there was a resurgence in internet business starting around 2005 when "web 2.0" got popular and many new businesses came on the scene. This includes social networking, ecommerce, web publishing.
My company made imaging peripherals, and were very conservative, so they weren't on a bandwagon. Our jobs were OK.
I feel like the .com crash was pretty telegraphed. People who could spell "HTTP" were being hired as Chief In Charge Of Everything Web Gods, and they were spending company money like candy.
It cleared the way for companies like Google and MySpace (which met its end, not long after).
My company got fat on consumer cameras, which were destroyed in about 2010, after the smartphone revolution started to really get going. The next seven years were kind of a mad scramble for market share, while the managers kept doing everything but admitting that they really screwed the pooch, by not anticipating the rise of cellphone cameras.
Come to think of it, there is a lot of that "Nobody saw it coming" language, here, as well.
I am very fiscally conservative, and my indicator of a coming reckoning, was watching all the Scrooge McDucks, diving into their piles of money. That doesn't end well (see: 1929).
In early 2000 within a few months the traffic on 680 south over the Sunol Grade(main road to the SV from points NE) went from dead stopped at 4:30am, to no traffic at all at 7:30am. It was breathtaking.
I managed to hole up in a consulting gig in manufacturing. We had our rates shaved 20% and felt lucky. Everyone who had left for greener pastures called up looking for work over the next year. I mean everyone. It was sad.
As described above, there were no jobs to had.
I recall a new building put up around the 580/680 interchange. I used it as my canary, when it was occupied I would call the recovery happening. It was empty from 2000-2003.
2008 was bad for other sectors, tech had issues, but nothing like 2000.
What's going on now isn't the same. There are specific pullbacks. Twitter is about the Elon buyout. In other places there is money. And in my manufacturing universe I'm having trouble finding people.
1. During the time, as was alluded, I was watching all these folks I knew were knuckleheads, getting all "tech-bro" (That is not a new thing). They would often treat me in fairly shabby fashion, for not jumping on their bandwagon.
I did get pretty good at Web stuff, but as a volunteer side gig. I've actually been designing Web sites since the mid-'90s, but I never made it a full-time vocation.
2. I think it was about five years, before the next bubble began to form, as Google started getting big. 2007, was when smartphones showed up (the iPhone). That changed everything, but it took a few years, to really become ubiquitous.
In this case, rising interest rates have a very direct negative impact on new investments. As new investments contract, demand shrinks for services across the industry. As demand shrinks, fewer employees are needed and companies need to reduce headcount to avoid overspending relative to revenues.
There is a cascading effect, but it would be a mistake to attribute it all to a big psychological mistake. When demand goes down (in this case due to rising rates) there really is less money flowing into companies.
This puts it mildly. Paul Volcker has been (perhaps unfairly) called the Father of the Rustbelt, due to how rising interest rates broke the back of manufacturing in the American Midwest during the late 1970s and early 1980s. "Cooling" the economy means layoffs and plant closures, often concentrated in specific geographic regions. The only question is: what firms and employees get sacrificed to placate the inflation Gods this time around?
We should not ignore that for countries like Japan and Germany, they have an enormous advantage in not having to spend realistically on a defense budget relative to their risk-prone geography, living as they do under an umbrella.
Adding context: the US Fed raised the interest rate benchmark this week to 4%, with the expectation that it will be raised higher. Credit's getting a lot more expensive.
Yep, don't even look at mortgages until housing prices drop in response to the rate increases. Because the amount of total money paid in interest over a 30 loan increased more than 2x over the last year.
Critically, tech workers are compensated highly because they are working on investments. We're not laying bricks where it's easy to measure what we accomplished in a given day, we are usually building products and tech stacks that are projected to bring in FUTURE cash.
When interest rates were held low, the planning horizon was very long and we got a huge expansion in future-looking projects. Now that horizon is shrinking and disproportionately impacting the jobs that are associated with future investments rather than ongoing operations.
This is a really good take, and I wanna expand it further: when interest rates are lower and planning horizons are longer, valuations get bigger.
If you think of a company’s market capitalization as a rough measure of its future cash flows, that valuation is gonna be a lot higher when those future cash flows don’t have to fight much future interest.
Higher future valuations means it’s worth paying more NOW to capture a slice of that valuation.
The cynic in me would say that the valuations were driven more from the cash-supply side, which allowed a lot of people to play "VC investor" or "VP with a sexy R&D portfolio."
No one really leads with a low-level analyst's DCF model in real life, it's backfitted to justify an investment that feels right at the multiple that has comps.
I think this is going to be less about the academic economics, and more of a baseball card bubble bursting around software products that promised free growth at 100% unit margins. The cash is still there, and still wants to be invested, but everyone's a little timid and doesn't want to look irresponsible.
> As new investments contract, demand shrinks for services across the industry. As demand shrinks, fewer employees are needed and companies need to reduce headcount to avoid overspending relative to revenues.
As someone who has only taken Econ 101 in college, can you explain
1) why the demand shrinks when there's not enough new investments? Shouldn't demand at least be the same overall (I mean I can see that fewer new houses are built, so the demand for timber might shrink. But that only explains the housing sector. I'd imagine the demand might stay constant for some industry such as transportation)?
2) Related to #2, if demand does not shrink by much, shouldn't the same number of workers be kept employed to fulfill the demand for goods?
If it's true that the contraction of new investments causes shrinkage of demand, it means the economy is heavily reliant on industries/sectors which relies on new investments (aka growth)?
Some of these questions won't be answered in Economics class, but may be in Management Science class (that's what they called in back in my day).
Regarding your #2:
Companies cannot adjust headcount in real-time. Economics is a 'social science' as a result; you cannot create experiments in controlled environments with randomly selected populations like you can with the natural sciences. Experiments of this kind happen do happen, but for small-scale things like behavioural finance among neighborhoods, rather than between billion-dollar companies.
Layoffs are a human decision. As such, the logic behind them, and the timing of them, can't fully be explained by economic theory.
One reason why workers are sacked even when demand remains the same, can simply be because there is a surplus of labour available at that time, and the company is betting that they can fire them and rehire at lower wages.
Another reason is simply 'fitting in' with what everyone else is doing to meet Wall St expectations (or VC expectations). Look at the job cuts today: Stripe 14%, Lyft 13%, Mollie 15%. Why are they all the same? Because they are all in the 'tech' industry and valued by the same set of metrics.
New investment is things like making buildings, investing in VC, making new machines for manufacturing. Those are funded by cash or loans. When interest rates rise more cash goes to seeking interest and less toward these physical investments, and less money is created de novo from loans to fund these things.
It’s worth keeping in mind that money spent on new buildings and machines goes to wages of employees building them, which then goes to rents and food, and elsewhere throughout the economy.
For 2, yes and no. A lot of workers are employed doing things with low or speculative marginal ROI (example: Coca Cola starts funding R&D into a new line of beverages) because the cost of capital (taking a loan against cash flow or spending earnings on reinvestment instead of returning it to shareholders) is low. Increasing interest rates increases the cost of capital, the risk feee opportunity cost of spending money on more speculative pursuits like R&D. So now Coca Cola might instead choose to return that money to shareholders or not take out financing to start operations like that
Tech jobs are somewhat decoupled from true demand. They are usually inherently an indirect investment, not a direct cost. But when they and their activities go away, you lose the B2B demand that they had to accomplish their jobs and the B2C demand they had from spending their salaries.
For example, my last 3 product jobs have been a business travel offering, an HR learning management tool, and a Predictive analytics tool for data scientists working in marketing. A lot of the users who paid the bills were some form of tech worker that were executing on projects that were future investments.
Investors have been handed a truly mind-boggling amount of cash since 2008, but there hasn't been a lot of stimulus to the actual day-to-day economy. Valuations had to go up to accommodate this cash, and without a corresponding increase in consumer spending there's really only one lever in the financial model that drastically impacts valuation without seriously changing the core business: year-on-year growth.
Most growth stories are laughably improbable, and the investors need plausibility to play the game. Fundraising turned into a story-telling competition of who could spin the most plausible growth story that is hard to verify and hasn't been disproved. That story is some form of "we will completely dominate market X, by building software that enables hyper-scaling with minimal unit costs, and that also includes AI/ML/Optimization (to be developed) that solves the inherently hard problems in this industry."
That story is used for both VC-style external fundraising and internal project pitches, and it has crowded out most other approaches. A side-effect of that story has been a massive bubble in the jobs that can deliver on it - software engineers, designers, data scientists, product managers, etc. The game at most firms has been to keep kicking the outcomes down the road and claim that the hockey stick growth is right around the corner.
That worked until interest rates went up and far-future cash became much less valuable. The CFO and the Fund now need to show results in the very near term, and the knives are being sharpened for departments and companies who can't deliver on that. Those departments and companies remove demand when they fold, and there isn't a clear immediate activity that returns quick cash to replace them.
> why the demand shrinks when there's not enough new investments?
The way I understand it: when interest rates increase, the ROI for any investment goes down, which makes many new investments risky or worthless. Thus investments in new projects go down, which reduces the demand. The investment could be a new shop, raw materials for new buildings, software projects, etc. When it's said the "demand" decreases, its not the want that goes away but the ability of people to realize the want that goes away.
> if demand does not shrink by much, shouldn't the same number of workers be kept employed to fulfill the demand for goods?
Depends. If the cost of doing business rises, the profit decreases. To maintain value, there could be a decrease in headcount increase or layoffs.
> it means the economy is heavily reliant on industries/sectors which relies on new investments (aka growth)
I think (and someone who is more aware can correct me), it boils down to the ROI. Why would any business investment in something with risk when the ROI doesn't make it worth it. If the risk-free interest rate 5%, any investment with a ROI of say 7% or below (higher for riskier investments) are out of the question. Any entity could make money by saving at the risk free rate.
When demand goes down (in this case due to rising rates)
Rates are rising because of inflation. Inflation is rising because people are spending.
Why are people spending all at once? It could be because of the pandemic restrictions lifting, but also because of mass psychology ("OMG! everything is getting more expensive! I must buy while I can").
If people resisted the bandwagon effect, and bought when stuff is cheap, while saving when stuff is expensive, they'd be much better off.
"The time to buy is when there's blood in the streets." - Baron Rothschild
And this is more likely what's impacting companies like Lyft. Their business model worked in an easy-money environment, but doesn't work in an environment with more normal interest rates where it's harder to borrow money and costs more.
Most companies are already making a shit ton of money. Firing people won't keep their stock prices from going down if a recession actually hits. It's moot.
They could run out of money of course. It’s about the cash flow. When rates were low a lot of companies used debt to acquire cash, use it to hire/spend beyond their current means in order to expand their business (more revenue later). This is pretty common, use debt to build a warehouse/data center/app widget/etc. In a recession, that extra revenue may not come, so they need to cut spending so spending < revenue instead.
Especially a company like Lyft that is likely losing money many months. I don’t know about today, but Uber and Lyft were famous for using venture capital to spend more than they took in every month. Eventually they run out of cash reserves, or they decide they can’t acquire more.
Both the bubble and the crash are almost purely psychological. It's greed and fear coming in waves. There can be technical fundamentals, but to take the example of Bitcoin, you don't need any technical fundamentals. Humans can create and destroy value on top of a very complex random number generator.
I was there during the dot com bubble bursting. Psychology factored into it, but it wasn't the primary reason the bubble bursted. The main two reasons were:
1. Hype around new technologies is sometimes warranted. Electrification, for example. It wasn't clear how long it would take for these weird new internet companies to really start turning a buck, but after a few years spreadsheet parameters were updated and the whole financial industry saw the writing on the wall for most web companies.
2. Many profitable and completely unfunded web companies primarily received their funding from other web companies that were. This set off a cascading reaction of bankruptcies and massive layoffs. Advertisers, publishers, tool makers, and many others were in this second category of legit business that lost the vast majority of their customers.
One of the downsides of an inflating currency is that there is a general feeling of "well I have to invest my money somewhere!" that is hard to overcome and leads to bubbles until the sky starts falling, so I agree with you that psychology is a factor; but the fundamentals still dominate in the medium to long term.
The current environment has a similar feeling to the early part of the dot com bubble-burst. In that early part of the burst we had the feeling that it could get bad, but we also were sort of deluding ourselves into thinking that it wouldn't be that bad.
...also HN today kind of looking like fuckedcompany[1] back in those days.
I agree that there are similarities, but many of the web businesses these days are legit with happy customers. The challenge seems to be more widespread across the economy and there are a few not-so-black-swan-anymore looking things on the horizon (e.g., a Sino war) that could dramatically change the picture for the whole industry.
My take away is that we may have a mild recession, but the likelihood of a massive recession is a lot higher than it has been in decades.
Exactly. One of the central features of the dot-com bubble were that stupid (as in never-gonna-work / Silicon Valley-the-series) companies were getting massive amounts of funding.
Then, it was because {value} = {idea} + {Internet}.
Except nobody knew how much value the {Internet} part added, because the Internet wasn't done solidifying in terms of capability (e.g. "AJAX? What's that?") or connectivity (PocketPC!).
Now, the Internet is a pretty well-known quantity.
So while Uber and Lyft and Masayoshi Son's portfolio might be massively overvaluing things, the fundamental nature is well understood.
Some stupid companies will die, but there are lots of companies making actual money doing actually useful things.
And the primary casualties of the dot-com bust are all so consolidated that the tools-impact will likely be lesser too. Amazon/MS/Google aren't going to go bankrupt over softer cloud demand.
It's not hard to imagine Lyft and/or Uber vanishing. Paraphrasing Buffet: The easy-money tide is going out and we're going to find out who's been swimming naked.
It just feels like the psychology behind a bank run. 1. Convince people their bank is in trouble. 2. They withdraw all their money. 3. Now the bank really is in trouble.
Or 1. Convince people stocks are going to go down. 2. Mass sell-off. 3. Now stocks really are going down.
I think this is just a self-fulfilling prophecy where business leaders convinced themselves a slowdown is coming, causing them to take actions that will result in a slowdown. A lot of what happens at the CxO level is looking around at your peer companies and imitating what they are doing.
>Or 1. Convince people stocks are going to go down
Stocks are not the economy.
We literally have a cold war with China escalating, a hot war in Europe (which we aren't directly involved in..yet), all after years of loose monetary and fiscal policy, inflation is at generation highs, with rates rising and housing relating prices crashing, and on and on...
Maybe HN needs some more serious economic analyses posted if people think all of this is caused by a 15% fall in SPX.
1. Convince people stocks are going to go down. 2. Mass sell-off. 3. Now stocks really are going down.
Pet conspiracy theory: boom/bust cycles are not only inevitable, but desirable to some extent. If the housing and stock markets didn't undergo catharsis every so often, new/beginning investors wouldn't be able to buy in.
The signs are usually telegraphed well in advance, but not by collusion or intent. A self-organizing conspiracy of sorts. It could be interpreted as "herd mentality" but I think that oversimplifies what's really going on, and why.
> Pet conspiracy theory: boom/bust cycles are not only inevitable, but desirable to some extent.
I wouldn’t call this a conspiracy theory at all. The founder of Bridgewater Associates, the largest hedge fund in the world, spent time and money to publish this idea in various forms. I learned about it from here:
There’s more to this idea—-the long term debt cycle—-but the premise is exactly what you stated. There are benefits to both the boom and bust phases of the economy.
Stocks were valued mainly pretty good when you consider interest rates. As rates go up then the expected return on stocks needs to change (we expect more return on them) so the prices fall. For instance, a dividend paying stock will see its price fall when interest rates increase because the dividend yield is a percentage of the stock price. When interest rates are low the yield can be low which means the price of the underlying stock is high. Until their profits catch up with the new reality the stock price will remain lower.
As for high flying tech (cloud, etc) - yeah, probably too much speculation there.
Somehow, I doubt that Marxism-Leninism and a destruction of social class in America is going to be achieved on the backs of... Comfortable, gruntled white collar employees making 200k-500k/year from selling ads.
Mostly I was agreeing with the analogy of a run on a bank. Fed pulled out of funding the economy as it was. Less money for them to spend on coffees, Ubers, etc.; less to “trickle down” given the uncertainty of grandpa Powell’s intention to bring pain to households (except his own of course; he’s got enough to be insulated from his actions).
If you want to go on a specific tangent involving dead men’s philosophy, be my guest. I was merely attempting to illustrate how apt the bank run analogy is.
I don’t see any mass layoffs among manufacturers, commodities producers, and energy companies
More like a long overdue correction in tech.
Some of these businesses have been around for nearly 15 years and haven’t had a single year of consistent profits. It was about time that markets humbled them.
There were huge layoffs in energy throughout 2020 and 2021, and while employment levels have been increasing, they are still far below 2019 levels. The correction has already happened in energy, triggered by COVID shutdowns, so they don't need to happen again now (hopefully).
Definitely not. Not in the absolute way that you phrased the question.
Psychology is a clear factor which acts as a positive feedback loop, but raising the cost of money/credit is very, very real to a lot of businesses. The immediate effect it has on the cost of loan service for cars and houses will start to affect those markets pretty quickly, which spills over into homebuilders. And companies at the margins that have been surviving by cheap debt service will get pushed over into insolvency.
Then those closures and layoffs affect demand, that affects every other company in the economy. Those people couldn't afford houses and cars at any interest rate, and they're not buying computers or anything else as well, they're probably trying to sell their used cars for some cash. Since everyone's spending is someone else's demand then as spending contracts demand destruction ripples through the economy.
The psychological effect is another positive feedback loop, though, and it will cause the correction to overshoot to the downside.
At the same time, though, this means that assets are on a fire sale, and the rich people who have cash on the sidelines can step in and buy up even more of the country, which does put a floor under the crash.
This is definitely something considered by economists; Keynes called it "animal spirits" or more boringly "expectations". If people think the economy is likely to be bad they're likely to want to take defensive action early .. causing the economy to be worse.
Agree we're not in a recession, but I'm not sure I'd say we're in a strong place. The impression I've got from the articles I've read is that no one knows what the fuck is going on. Some indicators look great (like unemployment), but others look bad (like inflation).
Low employment combined with high inflation is forcing the fed to raise interest rates to induce lower demand with the side affect being higher unemployment. This is how they killed inflation in the 80's. They are trying to thread the needle of inflation and recession. The likely outcome is eventually a recession.
Conversely, the government could raise taxes across the board to control demand and trickle that money back to individuals over time, but it is political suicide.
Keep in mind when the fed talks about lower demand, that includes lower labor demand. They are likely to be forced to push demand to recession levels if they want it to match supply across the board. More lockdowns in China is certainly not helping on the supply side, and the latest jobs report showed the labor market not loosening.
Tech or SAAS has definitely had a major correction/downturn. This is not evident in the unemployment data because it is such a small contingent vs the US population
It might be overdue. Tech came out of the 2008 recession pretty well in the mean (of course some people suffered badly). A lot of companies came out of it saying to cut costs they had to invest big in their technology.
The definition of a recession is two consecutive quarters of negative growth, which we've had.
We're waking up from a a long night of heavy drinking (free money via zero interest rate, unrestrained QE, etc.), the bill is due and you're plugging your ears and yelling that the party must go on.
Macroeconomics is economics plus psychology. Broader trends in the economy have elements of human behavior affecting them.
If you see cloudy skies, and the weather reports suggest "maybe hurricane, maybe not", and your neighbors are boarding up their windows, you might be driven to action as well.
On the other hand, if you have a pizzeria, and people are talking about diets, cholesterol, unhealthy food, everyone is buying fitness gear... but you still have a line infront of the restaurant, and your take-out phone operator doesn't have time to go pee, you don't fire workers.
So, internal numbers are probably showing a downwards trend too, if so many companies are laying off workers.
Yes, but so was the bubble that preceded it, in the opposite direction.
If you have a whole economy ignoring signs and pretending growth goes forever you get bigger, harder crashes.
We can hope that this downturn is going to be a short wave just in response to the post covid overhype. But really there are still big problems with real estate valuation with lots of things going to be literally under water in decades and everything overpriced as a result of bad policy with low interest and too many people having enormous loans for most of their working lives.
Housing as investment needs to be drug out into the street and shot, but there isn’t really any way to do that which doesn’t cause a huge economic shock.
I’ve been wondering the same. At some point it could become a self-fulfilling prophecy. Sadly enough we cannot A/B test both scenarios: one with the (possible) mass hysteria and one where everyone stays calm and stays the course.
Yes and no. Economics involves the trade of real Goods or real value. It also involves a psychological level based on expectation and predictions. There's a constant dance trying to align the latter with the former.
I don’t know about “mass hysteria” but this inflation has certainly made me purchase less physical stuff and especially less services, I guess I’m not the only one. Generally speaking a sudden decrease in buying is cause for a recession, unless you go the Keynesian way and make the Government make up for the lost demand, but I have a feeling that most of the governments are out of “good” money to throw at that.
I do live in Europe and not in the States, though, maybe things are different there.
I believe it's probably worse for you in Europe simply because of the energy costs eating up more of your income. Energy costs are going up here as well, but it seems to be more dependent on where you live and less dramatic for now.
Worse: Money is an illusion. We mistake a unit of measurement (like grams, or gallons) for wealth. In a recession, workers come to a construction site - material is still there, so is electricity and power tools ... but work can't continue and they will be fired because the boss has run out of inches.
> Worse: Money is an illusion. We mistake a unit of measurement (like grams, or gallons) for wealth. In a recession, workers come to a construction site - material is still there, so is electricity and power tools ... but work can't continue and they will be fired because the boss has run out of inches.
This is because the boss imagined getting more inches in future and made a leveraged bet. A downturn is a great opportunity for someone enterprising to become a boss and take everything in the construction site, hire people and build it themselves.
Money isn't an illusion. It is a useful abstraction of human effort/potential.
The workers will be fired because the boss has run out of societal-effort credits.
The only "illusion" is the collective understanding that these "made-up" credits can be redeemed with other counterparties for human effort in the future. So long as we all approximately believe that idea, it works.
Is people leaving an area that's about to get hit by a hurricane mass hysteria?
Was it not mass hysteria when FB, a company that everyone openly hates and who's main product is clearly dying was hiring by the thousands so they could "expand"?
Nothing is "just" one thing. But the there is a reinforcing effect which definitely makes it worse. You can check out "animal spirits" and Keynes if you want to go down a rabbit hole ;)
no? If paying employees has a return on investment that is lower than the interest rate on federally insured bonds, I will prefer the federally insured bonds. The biggest driver of inflation, and thus interest rate, is the supply/demand for labor.
What we're seeing are the natural consequences of the fed's mandate to prevent inflation. This is always at the cost of demand for labor, bu design.
The regulation supplied by the fed preserves the interests of capital at expense of the interests of labor. The dual mandate is essentially meaningless.
Given Lyft have (had?) an office in semi-fascist state of Republic of Belarus, there's no wonder they are laying off someone.
I double checked, the evidence of Minsk office is washed from their career portal. Yet, the old listings are there[0].
Issue is that most of those people have been likely opposing the government. Now they are out of their only source of income and wont be able to finance change.
Pressing X to doubt. Many of these companies did layoffs during the pandemic (like Lyft) - which in many cases were just an excuse to cull low performers - then just continued to grow at insane paces. Even these layoffs just put them back at pandemic-level figures.
Call me when companies are smaller than they were even before the pandemic, let alone crashing and burning.
