Recession? Downturn? Bueller? — July 2022 Newsletter

Now that we’re past the first half of 2022, it’s becoming clear that the big story of the second half of the year will be the (apparently) incoming recession. Or will it be? While the US recently entered a technical recession after two straight quarters of negative growth, other economic indicators seem to point in different directions. 

To state the obvious, we are in tough and, dare we say, unprecedented times. Remember the war in Europe? That’s still ongoing. And the pandemic? Looks like we might have to deal with another one soon. While there hasn’t been as much talk about global supply chains recently, inflation looks to remain high well into next year, and interest rates are still hiking. 

For our purposes, we’re going to go ahead and state outright that we are in an economic downturn. Whether you want to call it a full-blown recession or not, the truth is that everyone in the tech sector has seen the writing on the wall for some time now. So we’re dedicating our July Newsletter to discussing…whatever this is, and keeping you updated about major stories and developments. 

What’s Going On?

Shopify lays off 10% of staff amid slower sales — Yahoo! News

The online retail giant shed 10% of its workforce, becoming the latest tech firm to downsize in response of rising inflation and recessionary fears. 

US Inflation Quickens to 9.1%, Amping Up Fed Pressure to Go Big — Bloomberg News

US inflation rose to a four-decade high, with the Consumer Price Index (CPI) increasing by the most since 2005. 

Top Fed officials back aggressive interest-rate hikes until inflation eases — MarketWatch

Top officials at the Federal Reserve said this week that interest rates need to be raised higher, and remain high, to contain inflation even at the risk of causing a recession. 

Is the US Really in a Recession? 

It might seem like a straightforward question to answer, but deciding whether the US is in a recession or not is proving to be a challenge for many economists and government officials. While two consecutive quarters of negative GPD growth mark a technical recession, the recent GDP report also showed positive signs, such as an increase in consumer spending. 

In the US, a recession is only declared officially once the National Bureau of Economic Research makes the decision to do so. In reality, the picture is far from certain, and it might take a while for a decision to be made. 

One particular standout in the US economic picture is employment. Employers added 372,000 jobs in June, keeping the unemployment rate at 3.6%, the lowest rate in half a century. Personal income has also been growing for most of the year. Those numbers, however, don’t fully account for differences between various industries and sectors. Startups and tech companies, for example, have seen a significant number of layoffs throughout this year. 

What is certain is that economic and market conditions will remain challenging for the foreseeable future. For businesses, that means having to face an increasing number of risks, which will require creating an effective risk management plan. 

Startups and small businesses in particular need to consider getting the right insurance coverage to protect themselves during these uncertain times. For companies faced with difficult decisions around layoffs and employee count, employment practices liability insurance (EPLI) is especially important. 

Venture Capital Funding Declines in Q2, Remains Above Pre-Pandemic Levels

Based on findings from CB Insights, venture capital investment saw a significant decrease in Q2 of this year, with funding decreasing by 23% globally quarter-on-quarter. While US-based companies accounted for almost half of the $108.5B in funding raised last quarter, the percentage drop in VC investment was the second-largest drop in funding in a decade. 

Despite the drop, VC funding remains at near-historic highs due to the large increases seen since 2020. Q2 funding, in fact, was the 6th highest on record. For startups, it’s by no means all doom and gloom. There remains a lot of funding going around, despite the drops from last year’s highs. 

At the same time, there is no doubt that we are currently witnessing a significant pullback from investors, and startups should be prepared for the trend to continue if market losses and recessionary fears put further pressure on VCs. 

What’s New from Embroker?

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Our Startup Insurance Benchmark Report, with data based from over 5,000 Embroker transactions, analyzes startup risks and costs for founders. 

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