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Wednesday 25 January 2023
Today’s newsletter is from Myles Udland, Head of News at Yahoo Finance. Follow him on Twitter @MylesUdland and on LinkedIn. Read this and more market news on the go with the Yahoo Finance app.
Layoffs in the tech sector were the biggest economic story of 2023.
And now those layoffs appear to be spreading into 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 described as a “rapid decline in consumer-facing markets” — momentum that accelerated in December — along with a significant slowdown in China due to COVID-related disruptions.”
3M’s news followed an announcement by Newell Brands (NWL) on Monday that the Sharpie maker would be shedding 13% of its office staff.
Newell Brands Sharpie markers go on sale at a store in Manhattan, New York City, on February 7, 2022. Portal/Andrew Kelly
With so many layoffs in the headlines, it’s becoming increasingly difficult for investors and the general public to unearth official data showing that the hiring rate remains robust.
Technology companies have announced more than 50,000 layoffs this month alone, including Amazon (AMZN), Alphabet (GOOG, GOOGL) and Microsoft (MSFT).
This week’s news suggests that executives are becoming more comfortable announcing downsizing in this environment.
Nevertheless, the US economy created 223,000 jobs in December. The unemployment rate is at its lowest level in over 40 years. Last week, just 190,000 workers filed claims for unemployment insurance, the fewest in four months.
“Rising tech-sector layoffs do not appear to be upending the broader labor market, as these workers are easily absorbed elsewhere,” wrote Bob Schwartz, senior economist at Oxford Economics, in a note to clients last week.
And, of course, the scale of those job cuts matters — 3M employs 95,000 people, according to data from S&P Capital IQ. For its part, Newell employs 32,000 people, according to S&P Capital IQ.
The story goes on
Newell’s cuts are slightly deeper than 3M’s. Specifically, Newell said those reductions would apply to office workers, not manufacturing or other parts of the company.
While Newell CEO Ravi Saligram said that this would “help partially offset the impact of macroeconomic pressures on the business,” the company’s announcement was heavily influenced by the language of the advisors — “fast,” “agile,” and “optimize” all appearances .
This is a corporate reorganization through and through.
And regardless of the economic environment, some companies are always looking to restructure their business in exchange for downsizing.
Additionally, this week’s non-tech cuts come at a time when parts of the economy are still grappling with staff shortages.
3M CFO Monish Patolawala said Tuesday in a call with analysts that the shortage of nurses 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 surgeries.
In a way, these outstanding bottlenecks are likely to bolster leadership teams’ determination that the time is right to downsize. Finally, there is still a plentiful need for workers. Just maybe not for your exact role.
As layoff announcements continue to roll through corporate earnings season over the next few weeks, a line Coinbase (COIN) CEO Brian Armstrong used in announcing his own company’s cuts earlier this month continues to stand out.
“Over the last 10 years, along with most tech companies, we have focused too much on increasing headcount 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 an emerging, emotionally-driven market, and 3M or Newell, which make things like notebooks, glue, and gauze — among thousands of 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 public and subject to pressure from their stock prices and shareholders is not very large.
And the hiring, firing, and acquisition decisions faced by these leadership teams often look more similar than different.
So when one CEO says it’s time to “shift our focus to operational efficiency,” many more will follow. How widely this message gets spread will be one of the stories of the year.
What to see today
Tesla (TSLA), Abbott Laboratories (ABT), AT&T (T), Nasdaq (NDAQ), Boeing (BA), Ethan Allen (ETD), Kimberley Clark (KMB), loan club (LC), Levi Strauss (LEVI), Progressive (PGR), steel dynamics (STLD)
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