As the economy tightens and the Fed prepares to raise interest rates to combat the impending recession, many big tech companies are laying off parts of their workforce. These companies, such as Alphabet (Google's parent company), Microsoft, Amazon, and Goldman Sachs, are laying off their workers as their profits decrease and their valuations in the market decrease rapidly. One big example is Carvana, who was worth 80 billion 18 months ago. They are now only worth 1.5 billion, a 98% drop. They have laid off a significant amount of workers as they braced for their large drop.
This tech falloff is caused by high valuations over the previous 10-15 years, and investors pumping money into these companies as they've experienced rapid growth. However, as money gets "more expensive" from these rising interest rates, this will decrease spending by both company and investor, which in turn will decrease profits and tank stock prices. Money is no longer "free" like it has been for many years.
As of now, there seems to be no let up to these decreasing stock prices and layoffs as these companies try to brace for what's to come.
https://www.nytimes.com/2023/01/23/technology/tech-interest-rates-layoffs.html
In macroeconomic fluctuations, job loss is a normal occurrence, but these levels appear to be much higher than usual. Due to the significant job loss rates and the importance of these big tech companies to the national economy, do you think that the government will intervene to bail them out in a "too big to fail" type of scenario? Going off of that, to what degree do you think that job loss of this caliber will impact the macroeconomy?
ReplyDeleteI think the credit availability would tighten and short-term interest rates would also fall.
DeleteA 98% drop. Wow! I've been seeing so many people posting about their layoffs from all of the mentioned above companies and was curious to know what basis they did that off of, beyond the recently rising interest rates. I also wonder when Carvana started to experience this profit decrease to the point it is only worth 2% of what it was less than two years ago...
ReplyDeleteI get money in the economy fluctuates, but how does it get to the point where the rates go down that significantly?
ReplyDeleteThis is so interesting being that technology is literally taking over everything! How long do you think this will take for these tech companies to recover? I also read an article that had some information about Carvana. What a sad time for them.
ReplyDelete