Goldman Sachs was hit with a wave of layoffs this week that affected more than 3,000 of the firm’s staff, or about 6.5% of its total workforce. Those were the first layoffs for Goldman since before the pandemic. Also this week, the world’s largest money manager BlackRock, culled about 500 of its workers from its payroll.
“We’re already starting to see layoffs at Wall Street firms and there is talk about some restructuring in the banking industry,” Thomas Smythe, a finance professor at Florida Gulf Coast University, told the Washington Examiner.
The job cuts are likely only to be the first in a series of layoffs across the finance world and Wall Street as the country’s economic condition becomes shakier. The Federal Reserve has been raising interest rates at a historically aggressive pace to drive down inflation (which is clocking in at 6.5%). The action is designed to cool the economy in order to dampen demand, although it can end up leading to a recession that features rising joblessness.
Finance firms also hinted at the shifting economic landscape as year-end earnings reports were made public on Friday morning.
JPMorgan Chase CEO Jamie Dimon said that there is still much uncertainty heading into the new year, particularly with headwinds coming from the war in Ukraine, inflation, and the Fed’s “unprecedented” tightening cycle. The bank is expecting a modest deterioration in its macroeconomic outlook “reflecting a mild recession in the central case.”
Bank of America CEO Brian Moynihan said Friday that his firm is preparing for a recession, including a situation in which the recession is worse than anticipated and unemployment rises from the 3.5% level it is at now up to 5.5% this year.
“Our baseline scenario contemplates a mild recession. … But we also add to that a downside scenario, and what this results in is 95% of our reserve methodology is weighted toward a recessionary environment in 2023,” Moynihan told investors.
The increasingly darkening skies for banking and finance come after a year in which tech companies were buffeted by layoffs, despite most other parts of the labor market proving resilient.
In the United States, more than 90,000 workers in the tech sector were laid off in 2022, according to tracking by Crunchbase News. For instance, Tesla reportedly implemented a hiring freeze last month and will be conducting a round of layoffs next quarter. Ride-sharing giant Lyft in November revealed to staff that it would be cutting some 700 jobs in an effort to bolster its business, which is facing a slowing economy, heading into 2023.
Payment company Stripe announced that it would lay off more than 1,000 employees, which is about 14% of its labor force. Amazon announced it was laying off over 10,000 employees from its corporate offices and that it would implement a hiring freeze.
Smythe explained that in addition to storm clouds on the horizon for the economy, jobs at tech companies — and now finance firms — are also being hit by the lingering fallout of the pandemic, which began nearly three years ago.
He said that during typical recessions, financing dries up, so the Wall Street firms end up getting hit like everybody else.
“But of course the pandemic was radically different with all of the free money that was available. … Firms were issuing debt simply because they could,” Smythe said, noting that staff levels were ramped up during this period as a result.
But now that the country is out of a zero-rate environment and facing the likelihood of a recession, finance firms and tech companies who bulked up during the easy-money period are being forced to offload staff, a trend that is only expected to accelerate as 2023 ticks by and current employment levels become untenable.
One important consideration for the sector is the Fed’s next meeting at the end of the month. Central bank officials will huddle and decide by what degree to raise interest rates, and most investors hope that the Fed will slow down its hiking in order to help avoid job loss.
The central bank’s rate target is now 4.25% to 4.5%, the highest it has been since before the financial crisis in 2008. A survey of Fed participants released after the meeting shows that most foresee the target rate rising from 5% to 5.25% in 2023.
While finance and tech firms are beginning to start seeing layoffs, many other parts of the labor market are chugging right along despite the rate increases.
The economy added 223,000 more jobs in December, the Bureau of Labor Statistics reported last week, and the number of people applying for jobless claims each week (a forward-looking indicator of the labor market weakening) also shows no evidence of seriously increasing.
A Bankrate survey of economists conducted each quarter found that those polled placed the odds of a recession at 64% over the next year to year and a half. A monthly Bloomberg survey of economists found that there is about a 70% chance of a recession, more than double what was predicted six months ago.
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Original Author: Zachary Halaschak
Original Location: Finance industry sacks staff as economy falters