What the wave of tech layoffs tell us about the economy
By Nicole Goodkind, CNN Business
Friday’s jobs report came in strong: the US economy added 261,000 new jobs in October, blowing away analyst expectations of 200,000, even as unemployment ticked up to 3.7%.
But don’t let the jobs boom lull you into a false sense of employment security. Job cuts and pauses on hiring are beginning to flow across the tech sector, which boasts some of the most valuable companies in the world. That’s bad news for the economy as a whole.
What’s happening: Tech companies are announcing an alarming number of layoffs and hiring freezes.
▸ Amazon announced on Thursday that it is pressing pause on corporate hiring. “We anticipate keeping this pause in place for the next few months, and will continue to monitor what we’re seeing in the economy and the business to adjust as we think makes sense,” wrote Beth Galetti, senior vice president of people experience and technology at Amazon in a note to employees.
Late last month, Amazon forecast its revenue for the holiday quarter would be lighter than analysts had expected, causing its stock to fall sharply. Shares of Amazon are down more than 47% this year.
▸ Apple has reportedly instituted a hiring freeze of its own in all areas except research and development. In a statement, Apple said that it will continue to hire and is confident in its future, “but given the current economic environment we’re taking a very deliberate approach in some parts of the business.”
Like other tech companies, Apple is worried about slower growth during the holiday season, higher interest rates and waning consumer spending. Covid lockdowns in China are also hurting production of the iPhone 14. Apple stock is down about 25% so far this year.
▸ Meta is planning to begin large-scale layoffs this week, the Wall Street Journal reported on Sunday. The parent company of Facebook, Instagram and WhatsApp could cut thousands of jobs from its workforce of 87,000, and an announcement could come as soon as Wednesday, according to the report.
▸ Lyft said last Thursday that it will lay off 13% of its employees, or nearly 700 people, as it rethinks staffing amid rising inflation and fears of a looming recession. “We know today will be hard,” Lyft founders Logan Green and John Zimmer wrote in an employee memo obtained by CNN. “We’re facing a probable recession sometime in the next year and rideshare insurance costs are going up.”
In a filing announcing the layoffs, Lyft said it would likely incur $27 to $32 million in restructuring charges. “We are not immune to the realities of inflation and a slowing economy,” Lyft’s founders wrote in the memo to staffers. Shares of the car-share company are down nearly 70% so far this year.
▸ Online payments giant Stripe will lay off about 14% of its staff, CEO Patrick Collison wrote in a memo to staff Thursday. “We were much too optimistic about the internet economy’s near-term growth in 2022 and 2023 and underestimated both the likelihood and impact of a broader slowdown,” Collison wrote in the note. Just last year, Stripe became the most valuable US startup, with a valuation of $95 billion.
Chime, a private fintech firm, also announced it will lay off 12% of its 1,300-person workforce.
▸ Twitter on Friday announced extreme layoffs, noting that offices would be locked and badge access suspended as new CEO Elon Musk cuts about half of its 7,500-person workforce.
The bottom line: Headline jobs numbers and third-quarter corporate earnings still reflect a strong economy overall. But other companies won’t be immune to the softening demand from consumers and businesses that tech companies have noted.
Advertiser flight hits Twitter
More bad news for Twitter: Elon Musk said on Friday that the company has seen a “massive drop in revenue,” as a growing number of advertisers pause their spending on the platform following his controversial $44 billion acquisition of the company.
He attributed the decline to “activist groups pressuring advertisers, even though nothing has changed with content moderation and we did everything we could to appease the activists.”
General Mills and Volkswagen Group, which owns Audi, Porsche and Bentley, have confirmed to CNN that they’ve paused their paid activities on the platform in the wake of Musk’s takeover. Mondelez International and Pfizer have also reportedly joined that list.
On Friday, a group of watchdog organizations including the Anti-Defamation League, Free Press and GLAAD, increased their pressure on brands to rethink advertising on Twitter. The groups pointed to Friday’s mass layoffs of Twitter staff as a key factor, citing fears that Musk’s cuts will make it difficult to enforce Twitter’s election integrity policies along with other anti-hate speech policy.
The takeaway: This is a key moment for Musk, who spent much of his week in New York trying to keep advertisers on board with Twitter. It doesn’t help that the uncertainty around the platform comes at a bad time for ad revenue-dependent tech companies. Google and Meta both cited lower ad payouts as a massive challenge in their most recent earnings reports.
More potential supply chain woes
The threat of a US rail strike that could disrupt supply chains is still very real.
Two rail unions reached tentative deals with the railroads in September, ahead of a strike deadline, only to have their membership vote against ratifying them. Now, US Labor Secretary Marty Walsh says that without a deal he expects Congress will step in and impose contracts on the unhappy rank-and-file union members.
“My goal is to get those two unions back at the table with companies and get this thing done,” Walsh told CNN Friday. He said a negotiated agreement would be “the best thing we can do is avoid any type of rail strike or slowdown.”
If any rail unions were to go on strike, all the rail unions — which together represent about 110,000 members — would honor their picket lines and refuse to work.
That would spell bad news for supply chains. About 30% of US freight moves by rail. Prices of goods from gasoline to food and cars could soar if trains halt. In addition, factories could be forced to shut temporarily due to parts shortages. Goods that consumers want to buy during the holiday season could be missing from store shelves.
Walsh was involved in a 20-hour bargaining session that reached tentative labor deals just hours before a Sept. 16 strike deadline. He said barring new negotiated agreements, Congress would have to impose a contract on the unions, as a way to keep union members on the job.
If “for some reason [one of the unions] doesn’t get to an agreement with the companies then … Congress will have to take action to avert a strike in our country,” he said.
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