Utah is not in a recession… yet
No one likes to hear the word “layoffs.” But it happens—and it’s happening to jobs in Utah.
In February of 2022, Homie laid off 119 employees in the face of changing real estate and economic conditions. The cuts amounted to 28 percent of the company’s workforce.
Homie founder and CEO Johnny Hanna quickly took to LinkedIn to offer reference calls for every employee laid off. They were good employees, he says; the company just didn’t have the work it had hoped to. “When you’re in growth mode, you hire with plans to have more and more work,” he says. “When that work doesn’t come, you’ve over-hired, and you have to pull back.”
Hanna says the layoffs were part of a natural business cycle. For the past few years, the business has been focused on increasing revenue. Now, there’s a focus on profitability. “I think that’s the pullback in growth at all costs. We were rewarded. Everyone else has been rewarded as well, with increasing revenue,” he says. “In business, you focus on revenue growth, and then profitability becomes the new cool thing, and then you get to profitability, and then profitability is rewarded, and then growth is rewarded again. It’s just a cycle.”
Homie’s real estate system doesn’t use a commission for its local agents but rather a flat listing fee to sell homes. It’s a significant change from the traditional real estate industry. As a result, the company reported 150 percent revenue growth in 2019, leading to a $23 million capital raise announced in January 2020 that would help the company expand its Utah and Arizona operations into Nevada, Colorado, and Idaho. It was one of a growing number of emerging technology companies that raised large funding rounds in recent years.
“There’s never been more dry powder than there is right now. There has never been more money to be invested in companies than there is right now, and there hasn’t been over the last several years. It’s just been amazing,” Hanna says. “People continue to get round after round in high valuations without needing to focus on profitability. I think that’s where we, and everybody else, had to cut back. Because we were all focused on growth and expansion, we were being rewarded for it.”
It’s true. According to Crunchbase, global venture investment shattered records in 2021, with $643 billion invested and 92 percent year-over-year growth. That has pulled back in 2022. Crunchbase reported that in the second quarter of this year, funding reached $120 billion, the lowest quarter since the start of 2021. Hanna says investors “seem to be a little more hesitant in this environment.”
The past two years have also seen low unemployment rates for jobs in Utah and the US. The US unemployment rate was 3.6 percent in June 2022 and just 2 percent in Utah, according to the Department of Workforce Services. We were the second-lowest state in the nation—behind only Nebraska—and Salt Lake Chamber president and CEO Derek Miller doesn’t expect those rates to rise in the coming months.
Homie was among the companies hiring “red-hot” until October 2021, Hanna says. At that point, company leaders re-evaluated the real estate market and “saw things were starting to cool off a little bit.” After years that saw homes gobbled up as fast as they could be listed, rising interest rates have led to a spike in housing inventory. In July, the Utah Association of Realtors reported that median home prices rose in the month before, but homes were staying on the market for 17 percent longer, and new listings rose 12 percent. Still, the group notes that it’s still a seller’s market.
The real estate market is far from the only industry in a state of flux, and Homie is far from the only tech company to cut jobs this year. According to an analysis by Crunchbase, over 32,000 workers in the tech sector were laid off between January and July of 2022. Coinbase, Robinhood, and Netflix are among the companies to slash their employee totals so far. Through the midway point of 2022, tech layoffs haven’t drastically affected overall employment rates. Many companies continue to search for large numbers of workers.
That’s true in Utah, too—companies here have continued to hire in large numbers. For example, expense management software company Divvy is hiring for over 60 positions, mainly in Utah.
“The market for talent in Utah is fantastic, and we’re excited to be hiring from such an amazing local pool of talent to work in our Salt Lake City location,” Michael DeAngelo, Bill.com chief people officer, said in a statement.
Still, Americans and business leaders are on high alert. May’s consumer confidence in Utah hit its lowest level since data collection began in October 2020, according to the Salt Lake Chamber, and economic sentiment amongst the Utah business community dropped for the third straight quarter in Q4 of 2021, according to the Chamber’s CEOutlook survey.
“I feel like we’re just kind of at an in-between state right now where it’s not a recession yet. It looks like one, but no one’s really sure, so there’s a little tension,” Hanna says.
Those concerns coincide with the US economy slipping in recent quarters—the country technically entered a recession in July.
Defined by many people as two straight quarters of decline in the economy, the White House pushes back on that definition, saying, “Both official determinations of recessions and economists’ assessment of economic activity are based on a holistic look at the data, including the labor market, consumer and business spending, industrial production, and incomes. Based on these data, it is unlikely that the decline in GDP in the first quarter of this year—even if followed by another GDP decline in the second quarter—indicates a recession.”
Miller has an optimistic tone when looking at the state of the current economy. A recession doesn’t have to be as scary as it sounds as long as employment stays strong, he says.
A pair of small quarterly declines, if not coupled with significant unemployment, doesn’t have to be felt at such a large scale by the average household as it was 13 years ago. Even if growth stalls, the overall economy could remain strong as long as people are still in jobs in Utah.
For comparison, unemployment peaked at 10 percent in late 2009 during the Great Recession, up from five percent at the onset of 2008. “It’s possible that we could go into a recession but still maintain a low unemployment rate, which would be the best case scenario if we were to go into a recession,” Miller says. “We’re a consumer-driven economy, so it really is jobs that matter most. Jobs matter to the individual, jobs matter to the family and the household, and jobs matter to our economy. Because as long as we can keep people in jobs in Utah, they’re going to be getting a paycheck, and they’re going to be spending money. At the end of the day, it’s people spending money that makes our economy go.”
Ben Blau, a finance professor at Utah State University, says things could start to change as conditions continue to evolve, including interest rate increases. The Federal Reserve raised interest rates by 0.75 percent in July, the second straight month it had done so. “We’ve never really had this situation where unemployment numbers have been so strong, but we’ve actually been in a recession,” Blau says.
He anticipates that the Federal Reserve will continue to slowly raise rates to try and control inflation, which could lead to a jump in unemployment for jobs in Utah.
It isn’t just interest rate hikes that are affecting the economy. Wars, supply chain issues, and an ongoing global pandemic are problems that continue to grip the world’s economy. It’s a tough spot to be in. “Listen, I would not like to be in charge of setting policy,” Blau says. “There are just so many moving parts and so many things that may be out of the control of the policy-makers. I don’t think I’d want to touch that with a 10-foot pole. It’s a very, very difficult time for sure.”
If that is to come, it could be a while before layoffs truly start to make a dent in jobs in Utah. Unemployment can be a bit of a lagging indicator. For example, the Great Recession began in December 2007 and ended in June 2009, according to Investopedia. Unemployment peaked in October 2009, months after the recession officially ended.
The brief recession set in motion by the start of the Covid pandemic saw unemployment peak at 14.7 percent in April 2020, the month the recession officially ended. It was the first time in over 70 years that the unemployment associated with a recession didn’t peak while the economy was in recovery, Investopedia reported.
Tech companies, Blau says, are more sensitive to rising interest rates than the average business—and Utah has a lot of those. CompTIA’s State of the Tech Workforce report says 6.9 percent of the state’s workforce works in tech, the ninth-highest state ranking.
Despite its reliance on tech jobs in Utah, Blau and Miller are both bullish on the state and its ability to weather the storm. That proved true in each of the last two recessions. Utah’s highest unemployment rate was below the national average in each of the most recent recessions, peaking at eight percent in 2010 and 10 percent in 2020.
Both Blue and Miller mention the diversity of industries in Utah as a key to the state’s success. Miller says the state has “by some measures, the most diverse economy in the country.”
He’s optimistic when talking about the future of the state’s economy.
“I know in some ways it doesn’t feel that way right now because of inflation and because of housing prices, but compared to the rest of the country, Utah is still a great place to live as it relates to the cost of doing business and cost of living,” Miller says. “All those things put Utah in a strong position, regardless of whatever the national economy is going to do. I won’t say that we’re not tied to it. We certainly are. But history shows us that we come through and weather the storm better than most other places. That gives us hope that whatever is to come, Utah, relatively speaking, is going to be in a strong position.”
What effect inflation, interest rates, and other worldwide events will have on the job market remains to be seen.
“This is an interesting time,” Blau says. “There’s just so many moving parts on this one. It’s hard to figure out what’s going to happen.”