Amazon is doing some 'difficult' soul searching as it plans to slash jobs — but here's why the economy is going to 'very easily absorb' the layoffs and mark a 'turning point' in the sector

The news comes about a week after Meta confirmed it's laying off about 13% of its staff.

But while news of Silicon Valley’s sweeping layoffs have been adding to recession fears, some experts say they’re simply indicative of a transition in the economy. Tech stocks may have been plummeting — however, there’s been a surprising rebound in the manufacturing industry instead.

“There’s some thinking that this is representative of a major shift from sort of a high-growth, tech-based economy to a more manufacturing economy," says Christopher Kayes, a professor of management at the George Washington University School of Business.

Big tech companies are culling employees in an effort to cut costs

Amazon's reported layoffs would be the largest job cut in the company's history. But it's the timing of the move that especially surprised analysts. Not only did the e-commerce juggernaut recently more than double its cap compensation for tech workers due to the "particularly competitive labor market," it also tends to value stability in the lead-up to the holiday season.

But with the threat of a looming recession, many large tech companies have been forced to streamline operations. Meta CEO Mark Zuckerberg said in a letter to employees last Wednesday that he had anticipated sustained revenue growth and significantly increased the company’s investments following the onset of the COVID-19 pandemic.

“Not only has online commerce returned to prior trends, but the macroeconomic downturn, increased competition, and ads signal loss have caused our revenue to be much lower than I’d expected,” Zuckerberg wrote.

Meta reported a second straight decline in its third-quarter earnings in October — and forecasted another drop for the fourth quarter as well.

Other tech giants are facing similar issues and are either freezing hiring or slashing staff in an effort to cut costs. Twitter is estimated to have laid off half its workforce, while Apple and Amazon have paused hiring for many roles.

Kayes notes some of these companies may have previously over-hired due to aggressive growth expectations that “never materialized.” Big tech saw soaring profits over the past decade, but high inflation, interest rate hikes and recession fears may have cooled demand among customers this year.

"I think it's a turning point in the growth of the tech industry,” says Kayes. “The expectations for growth in many of these tech stocks — Metaverse, social media — were just sky high. And now those expectations are really coming back to Earth."

The combined value of mega-cap tech companies tumbled by a whopping $4 trillion in 2022, according to Bank of America.

What does this mean for the U.S. economy?

Kayes doesn’t believe that the layoffs and slow growth in big tech are necessarily pointing toward a recession — but adds that if there is an economic downturn, it might not be reflected in the labor market.

“Some would suggest that tech is going to be the first domino to fall and that's going to be representative of the broader economy,” Kayes says. “I tend to think that the economy is going to very easily absorb these jobs.”