Axios Macro

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Courtenay here, with some housekeeping: Neil is taking time off, so Felix Salmon, Axios' chief financial correspondent, will join me for the next few weeks.

  • ICYMI: The Fed released its semiannual financial stability report late Friday. The key message is that the financial system is holding up now, but the report flagged "continued low levels" of bond market liquidity as a possible source of fragility.

Today's newsletter, edited by Javier E. David and copy edited by Katie Lewis, is a 741-word, 3-minute read.

1 big thing: Tech is the labor market anomaly

Photo illustration of newspaper cut-outs shaped like bursts and arrows pointing in varying directions

Photo illustration: Annelise Capossela/Axios. Photos: FPG, Heritage Art/Heritage Images via Getty Images

The takeaway from the latest jobs report is that most businesses are hiring at a fast clip.

  • While big technology companies are making headlines for firing workers, they aren't representative of the rest of the economy.

Why it matters: To the extent that there are mass layoffs underway, it is largely contained to a single sector — one that employs relatively few people. The labor market overall is chugging along. Most workers, including tech workers, continue to enjoy plentiful job opportunities.

Where it stands: Currently, the nation's jobless rate is 3.7%, near the lowest level in more than half a century — even as a chill sets in across the tech industry.

  • Meta is reportedly the latest tech firm set to announce layoffs. That follows firing announcements from the likes of Lyft and Stripe last week (which were not reflected in the October jobs report).
  • Microsoft and Snap are among others that have shed workers. Amazon is pausing corporate hiring. Most have cited concerns about the economy.

Between the lines: As the Federal Reserve hikes interest rates to fight inflation, one worry is that as the economy slows, marginalized workers — last hired, first fired — would be the casualty of employers pulling back.

  • But it's the tech sector that's first to roll out widespread layoffs, where workers tend to be overwhelmingly white and higher-paid.

Flashback: In 2019, Fed chair Jerome Powell said low-to-moderate income workers were only beginning to reap the benefits of the decade-long economic recovery and booming labor market. That was a reason, he said, to keep interest rates low.

  • "I guess my view is, the best thing we can do for those people is to sustain the expansion, keep it going, and that's one of the overarching goals of this move," Powell said in a news conference after the Fed announced it would cut interest rates for the first time since 2008.

Now, the Fed is aggressively hiking rates to try to get a grip on inflation. But the full effect of its moves, officials say, has not yet shown up in the economy.

  • The labor market is much too hot, at least for the Fed's liking. But one result of that is the historically narrow gap between white and Black unemployment (though the latter group and Hispanics, on average, have faced higher inflation rates).

What to watch: What might help soften the blow for laid-off tech workers is that other employers are eager to snap them up — a reflection of the still-solid demand for workers.

  • That demand might weaken in the months ahead. By the end of next year, the median Fed official expects unemployment to rise to 4.4%, according to projections from September.
  • But Powell said last week that rates will peak at a higher level than previously thought, which may result in a worse final outcome for the labor market.

The bottom line: If we do end up in a recession, something like the one we saw in 2001 would be the best kind to end up in: Losses would be mainly centered on technology and its highly paid employees. That's not far from what's happening right now.

2. The big losers — and the big winner

Data: YCharts; Chart: Erin Davis/Axios Visuals

There's an obvious, simple, and true explanation for why tech companies are leading the way in terms of layoffs: They hired most aggressively when their valuations were soaring in 2021 — and then found themselves overstaffed when their share prices imploded in 2022.

Why it matters: The stock market tends to have a direct effect on tech industry employment. High and rising share prices are a sign to management that the market wants aggressive growth. The converse is a sign that it's worried about out-of-control labor costs.

The big picture: The pandemic increased the importance of our digital lives. It increased the amount that we bought online, and it pushed us to create and consume more screen-based content.

  • For all those reasons, you would expect the valuations of Netflix, Amazon and Meta to be higher today than they were pre-pandemic — and you would be wrong.
  • While those companies did increase in value last year, the market is telling them they overstretched. Amazon is down more than 50% from its high, Netflix is down 62% and Meta has fallen an astonishing 78%.

Between the lines: The one company that has largely managed to defy gravity is Apple, which is trading well above its pre-pandemic levels and is down a mere 26% from its all-time high.