The ongoing macro environment is extremely challenging for corporates and equity investors. The triple whammy of rising interest rates, red-hot inflation, and the threat of an upcoming recession have resulted in corporate layoffs across the board. 

Several companies on Wall Street are now looking to reduce costs and focus on improving the bottom line as consumer demand remains quite subdued. In fact, the first five weeks of 2023 has seen close to 100,000 job cuts, and this number is likely to move higher in the coming months. 

According to a report from Easymarkets, a new-age trading and investing platform, the ongoing earnings will be a key driver of company policies in the near term. 

 

All eyes on big-tech

Alphabet IncU+02019s (NASDAQ: GOOG) Google has recently joined its peers and chosen to lay off a significant number of workers, reducing its headcount by 12,000 (or 6%). The company’s former staff has openly criticized the rationale behind the move, which seems somewhat ruthless and impersonal, with information about their loss of employment being disseminated via the technologies they had a hand in creating.

ItU+02019s just the latest in a string of large-scale big tech layoffs in recent months. Amazon (NASDAQ: AMZN), Meta (NASDAQ: META), and Microsoft (NASDAQ: MSFT) are some of the more notable companies terminating thousands of staff. 

Tech employment in Silicon Valley skyrocketed after the Covid-19 outbreak forced people to shift and expand their online presence. During this time basically all the big tech companies rapidly expanded their workforces to keep up with the surge in demand. 

Are there more cuts coming across the industry this year? Probably. According to Layoffs.fyi, a website that records job layoffs in the industry, about 200,000 tech workers have been let go since the start of last year already.

There are several factors at play that have forced the hand of these companies to shed their workforce. LetU+02019s look at a few of them.

 

Recession & Inflation

In July 2022, the U.S. Bureau of Economic Analysis reported a second consecutive quarter of economic contraction, sparking recession fears. News media still fear a recession, and economists are uncertain. 

Rising costs force businesses to decrease their expenses, and since workers are a companyU+02019s biggest expenditure, theyU+02019re usually the first to go. Advertising cuts hurt IT companies like Meta, Google, Snap (NYSE: SNAP), and ByteDance as they majorly depend on this revenue stream.

 

Higher rates

The Fed has increased rates eight times since the beginning of 2022 and may have more to go in 2023. Due to the increasing expenses, companies can generally borrow less at higher interest rates, and the increased fees also affect VCs and other startup financings. Companies avoid riskier investments during times like these when the economy is uncertain, and often they rethink recruiting and expansion.

 

Pressure from Investors

As revenue declines, shareholders often demand that corporations cut costs after a time of rapid expansion. Companies like Microsoft and Meta have received criticism from investors for having large workforces relative to their competitors.

 

Is Artificial Intelligence replacing workers?

In a note from Alphabet CEO Sundar Pichai on January 20th, their company’s layoffs were announced as a means for the firm to strengthen its emphasis on artificial intelligence, among other things. With a huge push and competition for this space amongst many of the big tech firms, itU+02019s not hard to see more layoffs coming down the pike in the near future as a result.

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