January’s robust payroll report was a big surprise, particularly in light of all the recent high-profile layoffs. Challenger, Gray & Christmas, which has tracked layoff announcements for decades, reports that layoffs have increased as a share of total employment with significant variance by sector.

For example, the leisure and hospitality sector has seen relatively few layoffs, reflecting strong consumer demand and these firms’ struggles with finding enough labor. By contrast, tech companies account for 40% of total layoff announcements, which are approaching levels of the dot-com-crash era. 

A key problem for tech is that their 2020-2021 hiring binge did not generate materially stronger revenue growth and per-employee productivity has fallen below pre-COVID levels. Interestingly, laid-off tech workers appear to be quickly finding new jobs. The Bureau of Labor Statistics reports that the median time unemployed is just under four weeks, roughly half the time of the 2019-2020 period. Reportedly, many former tech workers are finding new employment with non-tech companies, helping to boost productivity across the economy. 

Shrinking profits and an uncertain economic outlook are starting to take a toll on sectors beyond tech. Lower business investment is weighing on U.S. GDP and will likely trigger a moderate recession later this year. This could further stress office footprints in technology-driven markets, such as Austin, Boulder and Seattle. Also, large-company staff reductions could spur another increase in sublease space in markets with a lot of head offices, such as Minneapolis.