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Wednesday, January 25, 2023
Today’s newsletter is at Myles Udland, head of news at Yahoo Finance. Follow him on Twitter @MylesUdland and on LinkedIn. Read this and other market news wherever you are with the Yahoo Finance app.
The layoffs that rocked the tech sector were the biggest economic story of 2023.
And now it looks like those layoffs are spilling over into new corners of corporate America.
On Tuesday morning, 3M (MMM) said it would cut 2,500 manufacturing jobs amid slower-than-expected growth following what the company called “a rapid decline in consumer-facing markets.” – momentum that accelerated in December – as well as a significant slowdown in China due to COVID-related disruptions.”
The news from 3M follows an announcement Monday from Newell Brands (NWL) that the Sharpie maker would cut office staff by 13%.
With so many layoff-related stories in the headlines, it’s become increasingly difficult for investors and the general public to reconcile the official data that shows hiring remains strong.
This month alone, tech companies announced more than 50,000 layoffs, including at Amazon (AMZN), Alphabet (GOOG, GOOGL), and Microsoft (MSFT).
This week’s news suggests executives’ comfort in announcing staff cuts continues to grow in this environment.
Yet in December, the US economy added 223,000 jobs. The unemployment rate is at its lowest level in over 40 years. Last week, only 190,000 workers filed unemployment insurance claims, the fewest in four months.
“Rising tech layoffs do not appear to be upsetting the broader labor market as these workers are easily absorbed elsewhere,” Bob Schwartz, senior economist at Oxford Economics, wrote in a note to clients. last week.
And, of course, the scale of those layoffs matters — according to S&P Capital IQ data, 3M employs 95,000 people. Newell, for its part, employs 32,000 people, according to S&P Capital IQ.
Newell’s cups are a bit deeper than 3M’s. Notably, Newell said those cuts would be for office workers, not manufacturing or other parts of the business.
So while Newell CEO Ravi Saligram said it would “help partially offset the impact of macro-economic pressures on the business”, the company’s announcement was heavy on consultant language – ” nimble”, “agile” and “optimized” all made appearances.
It is, from start to finish, a corporate restructuring.
And regardless of the economic environment, some companies are always looking to restructure their operations and, as a result, reduce their workforce.
Additionally, this week’s non-tech cuts come at a time when pockets of the economy are still struggling with staff shortages.
As 3M chief financial officer Monish Patolawala said on a call with analysts on Tuesday, labor shortages for nurses continue to plague the medical system. For 3M, this translated into slower growth in its medical solutions segment in the fourth quarter due to fewer elective procedures.
In some ways, these exceptional shortages are likely to reinforce the resolve of management teams that now is the time to downsize. After all, there is still a lot of demand for workers. Just maybe not for your exact role.
So, as layoff announcements continue to roll out throughout the corporate earnings season over the next few weeks, a line used by Coinbase (COIN) CEO Brian Armstrong to announce the cuts of his own company at the beginning of the month continues to stand out.
“Over the past 10 years, we, along with most tech companies, have focused too much on increasing headcount as a measure of success,” Armstrong wrote. “Particularly in this economic environment, it is important to focus on operational efficiency.”
The challenges facing a company like Coinbase, which sits at the center of a nascent, emotion-driven market, and 3M or Newell, which make things like notebooks, glue, and gauze — among thousands other products in hundreds of end markets – in many ways couldn’t be more different.
But the pool of companies in this country that are publicly traded and subject to pressure from their stock prices and their shareholders is not very large.
And the set of hiring, firing, and acquisition decisions faced by these leadership teams are often more alike than they are different.
So when one CEO says it’s time to “refocus our attention on operational efficiency,” many others will follow. How far this message has traveled will be one of the stories of the year.
What to watch today
You’re here (TSLA), Abbott Laboratories (ABT), AT&T (T), Nasdaq (NDAQ), Boeing (BA), Ethan Allen (AND D), Kimberly Clark (KMB), loan club (LC), Levi Strauss (LEVI), progressive (RMP), steel dynamics (STLD)
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