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Wednesday, January 25, 2023
Today’s newsletter is over Myles abroad, Head of News at Yahoo Finance. Follow him on Twitter @MylesUdland and further LinkedIn. Read this and more market news on the go with the Yahoo Finance app.
Layoffs in the technology sector were the biggest economic story of 2023.
And now it seems those layoffs are spreading to new corners of Corporate America.
On Tuesday morning, 3M (MMM) announced it would cut 2,500 manufacturing jobs as slower-than-expected growth followed what the company called “rapid declines in consumer-facing markets — dynamics that accelerated in December — along with a significant slowdown in the China due to COVID-related disruptions.”
The news from 3M followed an announcement Monday from Newell Brands (NWL) that the Sharpie maker would cut 13% of its office workforce.
With so many layoff stories in the headlines, it has become increasingly challenging for investors and the wider public to gather official data showing that hiring remains robust.
This month alone, tech companies have announced more than 50,000 layoffs, including at Amazon (AMZN), Alphabet (GOOG, GOOGL), and Microsoft (MSFT).
This week’s news suggests that board comfort continues to grow with the announcement of staff cuts in this environment.
Still, 223,000 jobs were added to the US economy in December. The unemployment rate is at its lowest level in more than 40 years. Last week, just 190,000 workers filed for unemployment insurance, the fewest in four months.
“The increasing number of layoffs in the technology sector does not appear to be upsetting the broader job market, as these workers are easily redeployed elsewhere,” Bob Schwartz, senior economist at Oxford Economics, wrote in a note to clients last week.
And, of course, the magnitude of these layoffs matters – according to data from S&P Capital IQ, 3M employs 95,000 people. Newell, in turn, employs 32,000 people, according to S&P Capital IQ.
Newell’s cuts are slightly deeper than 3M’s. Specifically, Newell said these discounts would be for office workers, not manufacturing or other parts of the company.
So while Newell’s CEO Ravi Saligram said it would “help partially offset the impact of macroeconomic pressures on the company,” the company’s announcement was heavy on the advisor’s language — “agile,” agile” and “optimize” all performances.
This is a corporate restructuring through and through.
And regardless of the economic climate, some companies are always looking for ways to restructure their operations and, in turn, reduce headcount.
In addition, this week’s nontechnical cuts come at a time when parts of the economy are still struggling with headcount shortages.
As 3M CFO Monish Patolawala said during a call with analysts on Tuesday, the shortage of nurses’ labor force continues to weigh on the medical system. For 3M, this meant slower growth in the medical solutions segment in the fourth quarter due to fewer elective procedures.
In some ways, these outstanding shortfalls are likely hardening executive teams’ determination that the time is right to cut staff. After all, there is still sufficient demand for labour. Just maybe not for your exact role.
So as layoff announcements continue to roll through corporate earnings season in the coming weeks, one line that Coinbase (COIN) CEO Brian Armstrong used when announcing his own company’s cutbacks earlier this month continues to stand out.
“In the past 10 years, we, like most technology companies, have become too focused on workforce growth as a measure of success,” Armstrong wrote. “Especially in this economic environment, it is important to shift our focus to operational efficiency.”
The challenges faced by a company like Coinbase, which is at the center of a nascent, emotionally driven market, and 3M or Newell, which make things like notebooks, glue, and mesh — among thousands of other products in hundreds of end markets — in many ways cannot more differences.
But the pool of companies in this country that are listed and subject to the pressure of their share prices and shareholders is not very large.
And the array of decisions these leadership teams face around hiring, firing, and recruiting is often more similar than they are different.
So when one CEO says the time is right “to shift our focus to operational efficiency,” many more will follow. How far that message travels will be one of the stories of the year.
What to watch today
Tesla (TSLA), Abbott Laboratories (ABBOT), AT&T (T), Nasdaq (YET), Boeing (BA), Ethan Allen (ETD), Kimberly Clark (KMB), Lending club (LC), Levi Strauss (LEVI), Progressive (PGR), Steel dynamics (STLD)
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