The more I spend time reviewing articles about the economy, the less I think anyone has a sense of what is going on. Let’s take a bit of a romp through some of the latest reports.
IDC reporting on printer shipments – they’re down 2.1 percent year on year for Q1. They also advise that PC shipments are expected to decline 8.2 percent year over year in 2022 to 321.2 million units shipped. Tablets are expected to fall 6.2 percent in 2022.
TechAisle is reporting on PC shipments. SMBs worldwide are likely to purchase 101.2 million units, a 1.9% increase from 2021, revised down from 104.5 million PCs predicted earlier in March. Workforce scarcity (58% of SMBs), inflation anxiety (47% of SMBs), recession angst (41% of SMBs), ASP (average selling price increases) of 3.3% to 7.7% q-o-q, and increasing investments in non-IT capital equipment (18% of SMBs) are contributing to the slowdown in PC purchases.
Now, let’s go broader. Pulling from Axios – noting that despite inflation, some consumer items are getting cheaper – sporting events are down 11%, for example – but the one to note for IT services is smartphones being 20% cheaper.
There’s also concern among workers broadly – Axios and Morning Consult are reporting broad increases in the percentage of workers expecting a loss of income in the next four weeks, and that’s across all income levels. But, notable that the fears aren’t necessarily lining up with reality. The number of higher-income respondents who said they actually lost employment income in the prior four weeks was just 7%, basically unchanged from May.
I also highlight a long piece in Vice focused on the impact of the market. I’m going to quote two passages.
“Throughout the macroeconomic profession and monetary policy sphere, people like to elide this point that raising interest rates will somehow magically bring prices down,” Carter told Motherboard. “They don’t talk about the mechanisms by which it lowers prices. The way it lowers prices is by reducing household income, specifically by reducing the income households get from labor.”
The U.S. has had very low-interest rates for a very long time, making it easy and inexpensive for companies to borrow money, allowing them to aggressively hire and grow (and encouraging companies and investors to speculate recklessly with it). This, along with COVID and what employers called a “labor shortage,” recently increased wages and led to record low unemployment, which workers got to enjoy for, like, three months before inflation started eating into what little gains they made; now rising interest rates will probably hurt many people even more. Meanwhile, companies have argued that they need to raise prices because they’ve had to pay workers more while making record profits.
“The way you reduce wages is basically through layoffs and pay cuts. When you raise interest rates, you are tightening financial conditions. You are making it harder for businesses to get loans to finance ordinary operations. When it becomes more expensive to borrow money, businesses cut costs in other places, notably labor,” Carter said. When people are laid off, people make less money, so they buy fewer things, so prices go down. There are more people searching for jobs, the “labor crisis” eases, what little power workers recently gained shifts back to companies, and people have to accept jobs for less money than they have had to in recent years. More or less.
And second, “I think we should not rule out the possibility of a soft landing. They raise rates now, which prevents further wage growth from adding to existing inflationary pressures.”
Why do we care?
I linger on that Vice piece due to the context and perspective – it COULD go wrong, or it might not. The tea leaves are pretty murky. I’m advising caution because it’s never a bad tactic when the waters are so murky.
I’m far less worried about the core of IT services than I am about the impact of what customers feel on the services delivered. Take PC shipments – steady. Smartphones are cheaper. The core pieces of technology delivery are fine… it’s the labor component for customers to be sensitive to. If they cut, it’s felt by providers.
That’s the caution—a second-order effect rather than a first.