Forecasting In Uncertainty: What The US Jobs Market Report Tells Us About The Tech Market Outlook
The US Bureau of Labor Statistics recently released its Employment Situation Summary for April 2020. That report has implications for the US tech market outlook in the pandemic-driven recession because the specific industries that are shedding workers are the ones most likely to cut their tech spending sharply in 2020. The data confirms most of my assumptions for industry tech spending from my April 7 US tech market report (see “US Tech Budget Outlooks In A COVID-19 Recession“) but challenges others. Here are the implications for the US tech market and tech spending by industry:
- As expected, leisure and entertainment and retail are in a severe crisis, with job losses of 25% or more, but they represent just 7% of US tech spending. Industries shut down by the pandemic such as amusements and recreation, arts and entertainment, restaurants and lodging, and clothing and furniture retailers had job losses that equal 40% to 60% of February levels. Other industries like air transportation, auto manufacturing, mass transit systems, and sporting goods and miscellaneous retailers had job losses of 25% to 39% of the workforce. These industries are in crisis. They will probably cut their tech spending by 25% to 50% of their planned 2020 tech budgets. In total, these industries make up 25% of the US workforce and over a fifth of US gross output. Their tech spending, however, is a relatively low proportion of their revenues, generally in the 1% to 3% range, so their cuts will only impact about 7% of total US tech spending.
- Surprisingly, media, industrial products, and social services are in moderate-crisis mode and make up 12% of US tech spending. In media, motion picture and sound recording, broadcasting, and printing saw layoffs of up to 40% of the workforce, even though they weren’t directly impacted by pandemic containment measures. Job losses of 15% to 24% hit industrial product manufacturers such as aircraft and other transportation equipment, furniture, and miscellaneous durable goods as consumer demand dried up. Jobs in ambulatory healthcare and social assistance services also suffered as patient traffic and donations dropped off. All three of these industry groups operate with relatively high tech spending, so these industries as a group make up an eighth of the US tech spending compared with their 9% share of the US job force.
- Transportation, professional services, construction, and consumer product manufacturing are in serious-adapt mode and make up 17% of US tech spending. These industries experienced job losses equal to 10% to 14% of their February workforce. Construction and private K-12 and higher education led this group, with 13% drops in employment. Job losses of 10% for water transportation and transportation support placed those industries in between air transportation’s big declines and rail and truck transportation’s smaller drops. Specialized design services, other professional services, and real estate and rental services had 10% to 11% drops in employment — less than the 17% decreases in administrative services but worse than the 5%-or-so declines in legal, accounting, management consulting, advertising, and tech consulting services. I had expected that these industries, which employ about a quarter of US workers, would do better in keeping workers on the payroll then they did. The exception was tech consulting services, where I anticipated that a drop in new project work would lead to much less spending on tech consulting services, but that hasn’t happened yet.
- Oil and gas, wholesale, education services, and healthcare services overall are under moderate stress but represent 8% of US tech spending. Modest job losses of 8% in oil and gas were a surprise, but I expect to see many more in May and June given the drop in oil prices to $20 a barrel. I also anticipated that wholesale job loss would mirror the drop in retail jobs, but the 6% drop in wholesale jobs was far smaller than the 29% drop in retail jobs. On the other hand, I thought employment in education and healthcare services would hold up. But layoffs among ambulatory care providers, rural hospitals, private schools, colleges, universities, and especially commercial education providers were greater than I expected. Still, while these industries represent 23% of the US workforce, their share of US tech spending is much lower.
- Governments, financial services, insurance, utilities, telecom, and high tech are not yet feeling stress and represent 56% of US tech spending. I had expected that these industries would continue more or less as normal in the pandemic, and so far that has been the case. Local governments did lay off 5% of their workers, however. State governments had almost no layoffs, but many are under acute financial strain due to falling sales and income tax revenues. Banks, securities firms, and insurance carriers also kept on almost all their workers, but that could change if the recession continues. Utilities and telcos also retained almost all their workers, as I expected. The biggest surprise was the lack of job losses in high tech. Still, with US firms likely to cut their tech budgets by 6–7% from 2019 levels, high tech firms will probably start to trim their workforce in the coming months. Overall, these industries, which represent over half of US tech spending, are likely to split into two categories. State and local governments, financial services firms, and high tech (representing about 30% of tech purchases) will slip into an adaptive mode, with 5% to 10% cuts in their 2020 tech budgets. The federal government, insurance, utilities, telcos, and pharmaceuticals (about 26% of tech) will be in steady-state mode.