The economic slump and rising inflation are slowly turning into what seems to be a recession. As a result, an increasing number of tech industry giants are bracing themselves. They are stopping new hiring or cutting down existing positions.
3 main indicators seemingly govern these tech giants’ decisions:
- Tech-heavy Nasdaq has dropped almost 20% since April
- More than 28,000 workers in the tech industry have lost their jobs
- Global computer sales fell 12.6%
The biggest industry behemoths, such as Alphabet, Amazon, and Apple, are the least affected by the reduction in economic activity. As a result, they have mostly been able to avoid job cuts. However, these giants have cited slowdowns in their search for new employees.
Apple (AAPL) is the latest to join this trend. On Tuesday, the company announced it would cease all new hires until year end. The decision will also include those who were already promised jobs and have just finished university.
Slowdown Is Imminent
The question about the pending recession is still in the air. However, the economic slowdown is clearly imminent. The market has seen several shocks in supply and demand. In effect, the market correction can only enter a bearish stage.
The world is still recovering from the lockdowns. Even more, Beijing has reported 689 new cases of Covid-19. This news comes as a letdown after Shanghai opened up less than two months ago.
Additionally, the events in eastern Europe drove up gas prices. All these events made people wary of making large purchases. Consumers also will not be spending their money on luxury expenses.
For tech companies, this is a warning and an opportunity. For instance, companies may portray their offerings as essential. As a result, they will prosper, selling their products to people working from home. However, if they fail to market their products properly, tech companies must expect a downturn in their revenue.
Normalization or Recession?
A recession as a reduction of economic activity is usually measured yearly as part of the national GDP. However, the situation might not be as problematic as some argue. We need to look at the big picture.
Even with the drop experienced in the last few weeks, the numbers are still not under pre-pandemic levels. And according to the US State Department, the stimulus policy has created approximately 4 million new jobs in the country. This might also be the driving force out of the tech slump.
People still work from home, so they are spending less on leisure. As a result, this caused a sharp increase in savings. In turn, this increase has translated into higher costs. This has also stopped further investments and long-term purchases.
Some people may soon return to work from the office. Consequently, the 2020 market shock may normalize to pre-pandemic levels rather than go into a full recession.
Apple Joining Job Freezes
At the moment, Apple is the last of the tech giants to announce their hiring hiatus in the foreseeable future. As they have stated in their memo, they are worried about a possible recession in the upcoming months.
Apple predicts its new lineup coming this October will be successful. The company also claims its products will answer much of customers’ demands. However, Apple is unsure about supply. Subsequently, they will probably need to split the delivery between the flagship and smaller models.
However, Apple is not just worried about its performance in the consumer market. In fact, the company is awaiting a verdict concerning a new bill proposed in the US senate. If this legislation comes to fruition, the company might also face reductions in revenue from the Apple Store platform.
And while the company has steadily increased its workforce, which has surpassed 150.000 people globally, that trend is about to stop. Depending on the new iPhone’s success, the company might even be experiencing layoffs later in the year. That is unless the situation changes.
Expected Slump in Services and Long-Term Commodities
We must separate the drop in cryptocurrencies’ trading volume and value from the overall drop in sales experienced in the tech industry. Blockchain products, like BitCoin, fell due to investment uncertainty. Conversely, the drop for the tech industry is generally due to reduced customer demand. Namely, due to inflation and high gas prices, many American households have found themselves struggling.
In this scenario, customers usually refrain from large long-term purchases. This means they stop buying phones, television sets, or other high-value items. They also will not update their older products at home.
Additionally, frivolous purchases are deemed unnecessary. This will reduce the demand for online apps, games, and other services. Only short-term consumer spending, such as food or medicine, will remain unaffected by this turn of events.
However, tech companies offer these soon-to-be marginalized niches specifically. And that is the main issue for them in this recession. If the overall economic situation does not change, the number of tech company customers will decrease.
A Revive Might Be Closer than We Think
Many experts have compared today’s economic situation with the housing bubble in 2009 that led to the global crisis. However, the comparison isn’t very adequate due to many differences. And that might be good news for both governments and consumers.
Namely, this recession has been more or less announced since 2020. Many people have also made contingencies if something similar happens today. This includes tightening the budget a bit and saving for when it happens.
The negative aspects of a recession, such as job loss in the service industry specifically, might not apply in this case. The world has been suffering for two years from lockdowns and their effects. As a result, many peoples’ desire to use the service industry grew stronger. And this desire also offsets households’ potential financial struggles.
Time will tell if both the tech industry and its employees will survive. Will the industry return bigger and better than ever? Or would the market fail and give rise to some new tech companies that we will regard as giants in the future?
