Anyone remember when Homer Simpson created “Compu-Global-Hyper-Mega-Net”? Marge asks him what, exactly, his company does, and he responds, “Eh, this industry moves so fast it’s really hard to tell.”
It was emblematic of a time in American economic history where tech and the Internet were exploding – a period that ultimately ended in a deafening “POP” sound when the bubble burst. These days, with social media companies that don’t even earn any money valued in the billions, it’s worth asking the same question. Especially when tech shares are losing value as they started to do last Friday, and are continuing to do today.
“The Tech Sector” is of course a very vague term that many economists and the Bureau of Labor Statistics haven’t quite settled on, so it’s hard to make anything but vague estimates for its actual size. You can play around with the numbers yourself here. By one gauge, the sector employs 1.3 to 2.5 million people. That’s out of 138 million people total employed in the U.S.
But its impact is wider than that.
“What the tech sector historically has done, and continues to do today, is come up with new ways of doing business for all companies and all industries,” says Matt Slaughter, director of the Center for Global Business and Government at Dartmouth’s Tuck School of Business, “in addition to cool technology innovations.”
One way an economy becomes more productive is through new technology — and the tech sector embodies that, of course.
So, does the fact that tech stocks are taking a beating signify a major problem under the hood of our economic engine?
“It’s not unusual,” says Stuart Freeman, chief equity strategist with Wells Fargo Advisors. He says tech stocks did well over the past year, and it’s normal that at some point people wanted to cash out. “After a while you see investors take profits in the meat of the tech sector, some of the larger companies.”
When that happens, it often nudges other investors to do the same thing, a bit like a run on the bank. Not a catastrophic one, but a distinguishable one nonetheless.
And what we’re seeing isn’t a rash, he adds. Friday was bad, but most tech stocks are only down between .7 and 1 percent over the year so far. And nothing he’s seen changes his estimate that tech stocks will grow 5-6 percent over the next year.
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