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After two years during which the employment trend was going up, there are already signs of a turn. While in the past it was small and medium-sized businesses that were making the headlines, the media is now focused on major companies that are reducing staff.
Governments are cutting back on fiscal spending, interest rates have risen, and customers are finding themselves forced to adjust their spending due to the elevated inflation. In such an environment, acting to cut down costs is the natural thing to do for businesses, whether big or small, in order to avoid negative ramifications down the road.
Top companies reducing staff
Twitter, Meta, Snap, and Coinbase are just some of the companies that have already announced significant layoffs. The majority of the brands in the headlines as of late are from the tech sector, which seems to be one of the hardest hit. Some estimates point to approximately 120,000 jobs lost in the technology space. Corporate employees who once worked for large companies can now be seen searching for new opportunities on platforms such as LinkedIn.
Cheap access to capital and low prices for commodities were beneficial for the tech sector during the last decade. Since that’s no longer the case, companies are facing pressure on their balance sheet. Experts working at easyMarkets, a retail brokerage with a long track record in the financial industry, point to the fact that central banks are committed to keeping interest rates high well into 2023, which will probably mean that the number of layoffs is likely to trend higher.
Risk of a recession looms
Spending on discretionary items has been going down, as people need to allocate more to staples and utilities. The services sector represents an important part of the economy, in particular among developed nations.
Warnings of a potential recession in 2023 are on a rise and even though there is no certainty in that respect, a significant slowdown is already taking place. Weakness is gradually spreading toward manufacturing, industrial production, and even corporate profits.
European countries seem to be the most exposed to a recession, with the conflict between Ukraine and Russia still not showing any signs of abating. Elevated energy prices led to double-digit inflation figures in places where the public and private sectors have grown accustomed to insignificant fluctuations.
In the USA, economic activity has been robust thus far, yet since there is less fiscal spending and interest rates had to rise as well, there is little to stimulate organic growth moving forward.
Corporate profits to be impacted?
Most of the major companies laying off workers are publicly listed, meaning they need to put shareholders’ interests first. After rising by an average of 20%, corporate profits are now seen up by 4-5%.
Current projections for 2023 point to a continued slow expansion of profits, yet those estimates do not consider a potential recession. If revenues and EPS figures enter negative territory, share prices will be under pressure. Preserving wealth is the key goal of any shareholder; if stocks go down, that might feed into more selling pressure.
