Don’t Mistake Tech Layoffs for a Recession

Twitter, now owned by a visibly flailing Elon Musk, has threatened a round of layoffs that could cut as much as 50% of the social platform’s staff.
On the other, we got a jobs report that dramatically outperformed Wall Street projections. Economists surveyed by the Wall Street Journal predicted that an average of 205,000 jobs would be added this quarter. Instead we got 261,000 new jobs, blowing out expectations even as unemployment rose by a hair to 3.7%.
Musk is apparently not any smarter than those lemmings, or at least not any better at controlling his emotions. That $44 billion is 20%-25% above the market cap Twitter had pre-pandemic, and Musk now has to finance a $13 billion mountain of debt that may well outpace Twitter’s own inconsistent and mediocre profit stream.
But tech has also run on a more conceptual sort of debt, underwritten by forward-looking promises priced into the equity even of profitable operations like Amazon, Google, and Facebook/Meta. Meta in particular, with its stock down an aneurysm-inducing 70% since January.
Inflation is a serious looming worry – but it’s also deeply tied to this meta-economic rotation. The influx of cash that helped so many Americans during the pandemic is at least one factor in both current inflation and jobs strength. That cash plus the ensuing inflation is also likely driving a shift of wealth from the types of people who invest in venture-backed startups to the type of people who “invest” in food, cars, sneakers, gasoline and health care – categories among the top equity gainers right now.
If job numbers are so strong, why is Elon Musk slashing Twitter’s workforce?