Tech layoffs aren’t the canary in the coal mine for the US job market, says Morgan Stanley

Huge rounds of layoffs have been waged at tech companies like Lyft, Twitter, Stripe, Meta and Amazon in recent months, while some economists have argued that only higher unemployment can solve America’s persistent inflation problem.

But in a note on Thursday, analysts at Morgan Stanley said they doubt job cuts in the tech sector represent an impending “harbinger of change” for the broader job market.

While the investment bank’s experts said they expected US job growth to slow thanks to higher interest rates leading to hiring cuts, they predicted further deterioration in the job market was unlikely as the American economy largely “remains under labor shortages.”

Tech job cuts since 2021 have shed just 187,000 jobs, they noted, which is a “substantial” number for the industry but accounts for “little more than 0.1% of the total U.S. payroll.”

Tech layoffs are not “the canary in the coal mine” that signals the start of large-scale downsizing across all industries, the note’s authors wrote, arguing that even as companies look to cut labor costs, “there appears to be little fat being cut can”.

Morgan Stanley isn’t the only investment bank allaying concerns about what massive tech layoffs could mean for the rest of America’s workforce. The lender’s note came days after analysts at Goldman Sachs issued a note of their own insisting that “tech layoffs are not a sign of an impending recession.”

“The technology industry accounts for a small fraction of total employment – for example, the unemployment rate would rise by less than 0.3 percentage points even in the unimaginable case that all workers in the ‘Internet publishing, broadcasting and web search portals’ industry are immediately laid off – hence any strain on the overall job market should be small,” Goldman analysts said.

“Second, tech job openings remain well above their pre-pandemic levels, so laid-off tech workers should have a good chance of finding new jobs. Third, tech layoffs have often historically increased without a corresponding increase in the total number of layoffs and historically have not been a leading indicator of an overall deterioration in the job market, and layoffs in other industries still appear limited.”

The US job market has remained strong even in the face of the US Federal Reserve’s rate hikes. Last month, American employers added 261,000 jobs even as the central bank raised its core interest rate to its highest level in 15 years.