SaaS, Tech Industry Brace for Worst as US Waits for Latest Job Report

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Economists are expecting slower growth when this Friday’s jobs report comes out. They estimate about 258,000 jobs were added in July compared to June’s 372,000 jobs. Also, experts project economic growth to further slow down as the Fed continues to raise inflation.

Meanwhile, analysts believe that unemployment will stay at 3.6%, while wages will increase by 0.3%. However, there will still be some movement in the labor market. Examples are sectors that are experiencing labor shortages like tourism, healthcare, leisure, and retail. Other sectors won’t be so active in hiring. These include manufacturing and construction.

The slowing down of monthly job gains is something that economists have been expecting. This is a natural stage for the labor market as it recovers from a shocking 21 million jobs lost when the pandemic started. Over the past two years, employers slowly added back jobs as the world set its path to recovery. At the highest, the US job market was averaging almost 562,000 jobs per month in 2021 based on data from the Bureau of Labor Statistics.

Where Does the Tech Industry Stand in the Labor Market?

The pandemic has no doubt created a huge impact on how companies allocated their capital and resources. The tech industry is probably one of the best examples. When businesses needed to shift operations online and adopt remote work, the tech market boomed. Consumers were also buying most of their needs online; thus, boosting e-commerce growth revenues. Amazon and Shopify were two of the e-commerce companies, for instance, that doubled their workforces to accommodate the surge in the demand.

Now, these very same companies, together with many others that hired employees aggressively during the pandemic, are now overstaffed. The list is long and includes Salesforce, Meta, Microsoft, Netflix, and Twitter among others. As a result, we saw successive announcements of mass layoffs and freeze-hirings in the first half of this year in the tech industry. Based on the sentiments in the US job report, we’ll probably see more layoffs in tech as the overall labor market slows down. This is basically a reallocation of capital back to pre-pandemic patterns.

Moreover, last week was filled with buzz about job cuts and layoffs as tech companies announced their Q2 earnings. Crunchbase estimates more than 32,000 workers in the tech industry have lost their jobs. Tech giants have joined the list of companies that are downsizing. These include Tesla, Robinhood, SoundCloud, and Coinbase. They’ve cited numerous reasons for the layoffs, from inflation to a horrendous crypto market. What people once thought were recession-proof jobs have been proven otherwise.

The Impact of a Declining Tech Market on SaaS

Though market reports have shown that SaaS is still in demand amid cuts in enterprise tech spending, a declining tech market does impact its growth. SaaS startups feel this negative impact the most. They could easily go belly up in a recession due to a cash flow shortage. Also, it’s often more challenging to get the funding they need when the economy is in a state of delaying new projects, minimizing risks, and focusing funds on crucial expenses for operations.

With that said, SaaS remains a crucial part of keeping the tech industry alive. This is primarily due to cloud computing revenues and the consistent cash flow companies receive from subscriptions. Additionally, layoffs from big techs could mean opportunities for SaaS startups to attract experienced developers to work for their business. This in turn could help them get ahead in their niche when the next boom comes.