🛑Watch out: the Great Hire could become the Great Fire as Recession Hits & Spending Shrinks

To say that the economy, and more specifically the labour market, has changed since covid is a whopper understatement. Trends like flexible working and WFH replaced our 9-5 office life. Workers were on the top and they could demand lots more, from pay to perks.

But how did we get here?

During the pandemic, our govs showered companies with support from covid loans to furlough schemes to keep unemployment from skyrocketing. (Unemployment spiked but then fell pretty soon after). The pandemic turned out to be a time of growth in every sense of the word when it could very well likely have been the exact opposite.

Govs across the world brought interest rates down to get consumers spending instead of saving. Here in the UK, they were lowered to 0.1% (practically zero!) and in the US, the Fed brought rates to 0% and launched a $700bn QE programme. 

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Hiring was all the rage!

Companies were flush with cash (real or otherwise!) and they decided to go on a hiring spree. They hired workers left right and centre to help build their ambitions. From Silicon Valley to Wall St, the sentiment was stunning. Banks were so desperate for junior bankers that they upped their salaries to as much as $150k. Not to mention the fact that Goldman juniors complained of their 100-hour working week. The bank had to do something or else they’d lose their #1 resource!

While banks were beefing up on their staff to cope with the M&A deal frenzy after confidence started booming on the back of the vaccine, demand for M&A lawyers was red hot. Lawyers – and junior ones – were offered starting salaries of ~$215k! This is not a typo. And if that doesn’t make you think you’re in the wrong biz, the joining bonus at Meta was around 40k for some grads. Let’s just say that’s more than my salary!

This party is over and the hangover has just begun…

We’re on the brink of a recession which is ‘technically’ 2 quarters (so 6 months) of negative economic growth (aka our economy is shrinking) but the classic symptom of a recession: high unemployment isn’t quite showing its face how we thought it would.

Worker in New York
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This looming recession also just so happens to be the most anticipated (and not in a good way) recession in modern history that everyone is expecting it. Literally. And the signs are certainly there. It all starts with consumer demand. When we spend less, this causes the economy to shrink since our spending makes up such a massive amount of GDP, around 60% in fact.

So the less we spend, the less “stuff” companies sell (from cars to mortgages) so they’ll need fewer workers around. Recessions are not when companies expand. They’re a time when companies do all they can to stay afloat and keep their costs down which means layoffs. 

Monthly job growth has averaged 392k in 2022, compared with 562k per month in 2021. So yes, jobs aren’t being added in the same way they were last year but it’s not that grim just yet. But, as this recession starts to grow legs, my guess is that however tight our labour market still is (I’m seeing job vacancies nearly everywhere I go!) things will start to unwind. Read here whether this super-tight labour market can continue.

Worker on bike on way to work
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Last in, first out.

The sectors that have already starting the layoffs (ahem, tech! Read all about that here) are the ones that expanded too quick, too soon. It’s a classic sign of a super-frothy-and-overheated market. Companies and their investors think that wonderful conditions (ahem, ultra-low interest rates) will literally continue till infinity. The greed for more is almost tangible. There’s always something that pops the bubble.

With all this uncertainty around the economy, job security and so on, the best thing you can do for yourself is to make sure you aren’t relying on any one single income stream. That you build more sources of income to weather the storm. The better your finances are, the less you’ll be impacted. 

And it goes without saying, the time to build your emergency fund is now. Not when you’ve lost your job. Because by that point it’ll be too late. Prudence pays off. So start building now that if the worst does happen, you’ll be in a much better position to handle it. 

Hang in there and be grateful for what you already have. No one knows what’s round the bend so don’t take what you have for granted. 

Disclaimer: This blog is not investment or financial advice. It is my opinion only. This blog is not a personal recommendation to buy/sell any security, or to adopt any such investment strategy. Always do your own research before you commit to any investment