US – Recession or Not?
There are differing opinions among experts as to whether or not the US is heading into a recession this year….
Read morePredicting the Future
Focused has always been on the pulse of both tech sector growth and contraction. The reason is obvious: when we see a majority of our clients wanting to grow and hire, we hear about it far in advance of most and usually six to nine months prior to a sector growth spurt… and similarly, when our clients are wanting to slow down, we always see this usually six months to a year prior to an overall slump in the sector.
We saw a creeping contraction starting at the end of 2021 gaining momentum and running the entirety of 2022.
2023 has started with a slight uptick in hiring.
Employment
Over the past few years, the large tech (and finance) companies have hired millions. Now hundreds of thousands are being laid off. For a while at least, there is a large pool of top tech talent to be hired by non-FAANG companies. In other words, tech talent won’t be so concentrated at Meta/Facebook, Amazon, Apple, Netflix and Alphabet/Google. This will give many companies an opportunity to hire some great talent.
What some are saying
Writing for Franklin Templeton at the end of December 2022, Jonathan Curtis shrewdly summarized the recent past for the US Tech economy, and made a good stab at predicting the coming year. Some of that report is quoted here. He writes from the viewpoint of investment in Tech companies but this gives a good idea of the outlook for Tech companies in general.
2022
“Rising interest rates, slowing economic activity and a normalization of COVID-19-era consumption habits pressured the technology sector in 2022….
Enterprise vs. consumer technology in 2023
“Looking to 2023, we expect enterprises to continue many of their Digital Transformation initiatives, albeit at a slower pace, even in the face of moderating rate increases and slowing economic activity. This is because these investments are driving needed productivity gains, especially in an inflationary environment. “We have found [investment] opportunities in high-quality platform-like companies—that are essential to their customers’ operations – in enterprise software and information technology (IT) services companies and the sub-themes of Secure Cloud and Software-as-a-Service (SaaS), Artificial Intelligence (AI)/Machine Learning, Future of Work and Cybersecurity.
“Conversely, we anticipate greater uncertainty in consumer technology as COVID-19 tailwinds continue to abate, energy prices rise in Europe and global economic activity slows. We believe areas such as consumer IT hardware, gaming, eCommerce, and digital advertising may have a slightly longer road to recovery. We also expect consumer discretionary spending to weaken as unemployment rises and as excess household savings that had built up during the pandemic decline amid persistently high inflation.”
This makes sense. Companies who are faced with continuing inflation and interest rates increases have no option but to improve their efficiency. That improvement can be brought about mostly through implementations of technology – not all technology but certain technology. At the same time, consumer discretionary spending is likely to soften.
Mr. Curtis goes on to talk about investment in tech. From an investment point of view, he would bet on enterprise-centric technology companies, as he says, “In our opinion, for investors who share our long-term mindset, the risk/reward profile in the technology sector is likely the best it has been in several years.”
With reference to the consumer tech sector, Rob Enderle at Tech News World sums his predictions up as follows: “The last few years haven’t been great for several reasons, but mostly because governments didn’t deal with the pandemic well. Shutdowns crippled the supply chain, and when people started coming back, they wanted to buy stuff, which created an imbalance between supply and demand that had government agencies doing terrible things to interest rates.
“It looks as if 2023 will see those chickens come home to roost. We’ll have an inauspicious mix of buyers with no money, but improved manufacturing capacity leading to excessive inventory and, I expect, accelerating layoffs.”
Summary
These are broad strokes, and one can get much more granular about the outlook for the Tech economy in the US in 2023, but we will keep this as a summary and cover some of the details individually, giving them the coverage they require and deserve in separate articles.
