2023 Economic View in Tech Services
The NBER in the US defines a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months”, typically understood as negative GDP growth for at least a couple of quarters. When this negative GDP growth materializes, the NBER retroactively defines the moment a recession started, and continues to monitor the economy to attempt to define when the recession ends, again with a delay. In summary, recession benchmarks are lagging indicators.
We have seen tech worker layoffs happening in the US and in global companies as well (between 200k-250k tech workers laid off depending on sources used) during all of 2022 and early 2023. With US unemployment in the 3.5% range and tech unemployment at the ~2% level (structural full employment one could argue), this level of tech worker layoffs is only ~4% of total unemployed folks in the US (assuming 100% US-based); not an alarming level seemingly. The tech industry is typically one of the first ones to react to slowness or changes in economic conditions (i.e. interest rate increases, etc), therefore also one of the first sectors to promptly show strength coming into the next cycle. At Alten Capital we track the rate of change of tech layoffs.
For companies that have tech products or have strategic digital transformation efforts underway (majority of the Fortune 1000), the potential impact is that typically they want to continue to execute on their tech plans and key business transformation efforts, albeit with smaller teams. As a product leader or CTO, attempting to execute the same strategic plans with a limited budget pushes them to find more cost-effective alternatives, potentially favoring tech services offerings that are in lower-cost regions such as Southeast Asia, Eastern Europe or Latin America.
At Alten Capital we believe a potential lower level of economic activity during 2023 may change the mix of tech services consumed by enterprises in the US (e.g. towards more operational improvements), but in no case reduce or slow down those organization's needs to continue to delight their customers and users digitally.
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