By Ari Levy, Hugh Son, Lauren Thomas and Leslie Josephs -
CNBC
It wasn't long ago that Amazon, Shopify and Peloton doubled their headcount to cope with a surge in customers during the pandemic, while Morgan Stanley swelled up to handle a record level of IPOs, and mortgage lenders added workers as rates fell. Lower interest rates sparked a
refinancing
boom .
On the other hand, Delta Air Lines, Hilton Worldwide and hundreds of restaurants reduced their staff due to closures that occurred in much of the country and in other parts of the world.
Now they are trying to reverse course.
Companies that hired like crazy in 2020 and 2021 to meet customer demand are being forced to make radical cutbacks or impose hiring freezes with a possible recession on the horizon.
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In a matter of months, CEOs have gone from hyper-growth mode to worrying about “macroeconomic uncertainty,” a phrase investors have heard many times on second-quarter earnings calls.
Stock trading app Robinhood and cryptocurrency exchange Coinbase recently cut more than 1,000 jobs following their blazing market debuts in 2021.
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Meanwhile, airlines, hotels and restaurants are facing the opposite problem as their businesses continue to recover from the era of COVID-19-induced stoppages.
After instituting massive layoffs early in the pandemic, they can't hire fast enough to meet demand and face a radically different labor market than they experienced more than two years ago, before the cuts.
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“The pandemic created unique conditions in many different sectors that caused a drastic reallocation of capital,” said Julia Pollak, chief economist at job recruitment site ZipRecruiter.
"A lot of those conditions are no longer there, so you're seeing a reallocation of capital back to more normal patterns," she added.
For entrepreneurs, these guidelines are especially difficult to navigate, because inflation levels have soared to a 40-year high, and the Federal Reserve (Fed) has raised its benchmark interest rate by 0.75 percentage point on consecutive occasions for first time since the early 1990s.
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The central bank's efforts to curb inflation have raised concerns that the US economy is headed for recession.
Gross Domestic Product (GDP) has fallen for two consecutive quarters, reaching a widely accepted rule of thumb for recession, although the National Bureau of Economic Research has yet to make that statement.
The downward trend was seen to be coming at some point, with market pundits lamenting the foaminess of share prices and the absurdity of valuations as far back as the fourth quarter of last year, when the major indices hit record highs. historical led by the riskiest assets.
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That was never more apparent than in November, when electric-vehicle maker Rivian went public with little revenue and quickly reached a market capitalization of more than $150 billion.
Bitcoin hit a record high the same day, touching $69,000.
Since then, bitcoin is down two-thirds and Rivian has lost close to 80% of its value.
In July, the car company began laying off about 6% of its workforce.
Rivian's headcount nearly quintupled to about 14,000 employees between the end of 2020 and mid-2022.
Tech sector layoffs and an air of caution
Job cuts and hiring slowdowns were the main talking points in tech companies' earnings calls last week.
Amazon cut its workforce by 99,000 to 1.52 million employees at the end of the second quarter, after nearly doubling in size during the pandemic when it needed to beef up its storage capacity.
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Shopify, whose cloud technology helps retailers build and run online stores, has cut some 1,000 workers, or about 10% of its global workforce.
The company doubled its workforce in a two-year period beginning in early 2020, as business soared from the number of stores and restaurants suddenly having to go digital.
Shopify CEO Tobias Lutke told employees in a memo that the company had bet that the rise of the pandemic would move the transition from physical retail to e-commerce "permanently forward 5 or even 10 years."
“It is now clear that gamble has not paid off,” Lutke wrote, adding that the landscape was starting to look more like it did before the pandemic.
“Ultimately, making this bet was my decision and I was wrong.
Now, we have to adjust,” he stated.
An American Airlines employee helps travelers with self-service check-in at Los Angeles International Airport in Los Angeles, California, on October 1, 2020. Frederic J. Brown / AFP via Getty Images
After Meta, Facebook's parent company, faltered on its results and forecast a second straight quarter of declining revenue, CEO Mark Zuckerberg announced that the company will cut job growth over the next year.
The number of workers increased by 60% during the pandemic.
"This is a period that demands more intensity and I hope we do more with fewer resources," Zuckerberg said.
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Google parent company Alphabet, which increased its workforce by more than 30% during the two years of the pandemic, recently told its employees to focus and improve productivity.
The company asked for suggestions on how to be more efficient at work.
“It is clear that we are facing a challenging macro environment with more uncertainty ahead,” CEO Sundar Pichai said at a meeting with employees.
“We need to think about how we can minimize distractions and really raise the bar on both product excellence and productivity.”
Few American companies have been hit as hard as Peloton, whose fitness equipment and on-demand classes became an instant replacement for gyms during lockdowns and which has suffered from massive oversupply and out-of-control costs ever since.
After doubling its workforce in the 12 months ending June 30, 2021, the company announced plans in February to cut 20% of corporate positions while appointing a new CEO.
Banks and Wall Street prepare for a "hurricane"
Some of the Peloton products flying off the shelves in the pandemic were being offered as perks for overworked junior bankers, who were badly needed to help manage a
boom
in IPOs, mergers and stock issuances.
Activity surged so ferociously that junior bankers complained about 100-hour workweeks, and banks began looking for talent in unusual places like consulting firms and accounting firms.
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This helps explain why the six largest US banks added 59,757 employees from the start of 2020 to mid-2022, the equivalent of the industry taking in the entire population of a Morgan Stanley or a Goldman Sachs in just over two years. .
It wasn't just investment banking.
The government has unleashed trillions of dollars in stimulus payments and loans to small businesses designed to keep the economy moving amid widespread shutdowns.
The dreaded wave of defaults never came, and banks instead received an unprecedented avalanche of deposits.
Its high street lending operations had better repayment rates than before the pandemic.
Among major banks, Morgan Stanley saw the largest increase in headcount, rising 29% to 78,386 employees from the beginning of 2020 to the middle of this year.
The growth was fueled in part by CEO James Gorman's acquisitions of money management firms E-Trade and Eaton Vance.
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At rival investment bank Goldman Sachs, staff levels jumped 22% to 47,000 in the same period as CEO David Solomon moved into consumer finance and beefed up wealth management operations. , including through the acquisition of fintech lender GreenSky.
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Citigroup saw a 15% increase in its workforce during the pandemic, while JPMorgan Chase added 8.5% to its workforce, becoming the largest employer in the sector.
But the good times on Wall Street did not last.
The stock market had its worst first half in 50 years and IPOs have dried up.
Investment banking revenues from major players fell sharply in the second quarter.
Goldman Sachs reacted by cutting hiring and is considering cutting jobs again later this year, according to a person with knowledge of the bank's plans.
Employees often make up the biggest expense item in banking, so when markets tank, layoffs are often on the horizon.
JPMorgan CEO Jamie Dimon warned investors in June that an economic "hurricane" was brewing, saying the bank was bracing for market volatility.
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ZipRecruiter's Pollak said one area of finance where there is likely to be a hemorrhage of workers is home loans.
He said 60% more people entered real estate in 2020 and 2021 due to record low mortgage rates and rising house prices.
JPMorgan and Wells Fargo reportedly cut hundreds of employees in the mortgage sector as volumes plummeted.
“No one is refinancing anymore, and sales are slowing down,” Pollak said.
“We will have to see how employment levels and hiring slow down.
That growth occurred at that time,” he explained.
The intersection of Silicon Valley and Wall Street is a particularly bleak place right now, as rising rates and crumbling stock multiples converge.
Cryptocurrency trading platform Coinbase announced plans in June to lay off 18% of its workforce to prepare for a “crypto winter” and even terminated job offers to people it had hired.
The workforce tripled in 2021 to 3,730 employees.
Stock trading app Robinhood announced Tuesday that it is cutting about 23% of its workforce, a little over three months after shedding 9% of its full-time staff, which had ballooned from 2,100 to 3,800. in the last nine months of 2021.
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"We're on the tail end of that pandemic-era distortion," said Aaron Terrazas, chief economist at job search and review site Glassdoor.
"Obviously it's not going to go away, but it's moving to a more normalized period, and companies are adapting to this new reality."
Retail goes back and forth
In retail, the story is more nuanced.
At the start of the pandemic, a sharp divide quickly emerged between businesses considered essential and those that were not.
Retailers like Target and Walmart, which sold groceries and other household items, were able to keep their lights on, while malls filled with clothing stores and department store chains were forced to temporarily close.
Macy's, Kohl's and the Gap had to lay off most of their retail employees as sales ground to a halt.
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But when these businesses reopened and millions of consumers received their stimulus checks, demand returned to malls and retail websites.
Companies rehired or expanded their workforce as fast as they could.
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Last August, Walmart began paying special bonuses to warehouse workers and covering 100% of employees' college tuition and textbook expenses.
Target launched a debt-free college education for full- and part-time employees and increased headcount by 22% from early 2020 to early 2022. Macy's promised better hourly wages.
They could hardly have predicted how quickly the dynamic would change, as fast and rising inflation forced Americans to tighten their belts.
Retailers have already started to warn of slowing demand, leaving them with bloated inventories.
Gap said the increased promotions will hit gross margins in its fiscal second quarter.
Kohl's cut its forecast for the second quarter, citing weakening consumer spending.
Walmart last week cut its profit forecast, saying rising food and gasoline prices are hurting consumers.
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That pain is seeping into the ad market.
Online bulletin board Pinterest on Monday cited "lower-than-expected demand from large US retailers and mid-market advertisers" as one of the reasons it missed Wall Street estimates for profit and loss. second quarter revenue.
Retail giants have so far avoided big layoff announcements, but smaller companies are in cutting mode.
Stitch Fix, 7-Eleven and Game Stop have said they will cut jobs, and outdoor grill maker Weber has warned it is considering layoffs as sales slow.
The travel industry can't hire fast enough
With all the cuts taking place across broad swaths of the US economy, the job market should be open for airlines, restaurants and hospitality companies, which are trying to repopulate their ranks after suffering massive layoffs when the pandemic hit. pandemic.
It's not that easy.
Although Amazon has reduced its workforce in recent times, it still has many more people working in its warehouses than it did two years ago.
Last year, the company raised the median starting wage to $18 an hour, a level difficult to achieve for much of the service industry.
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Hilton CEO Christopher Nassetta said on the May quarterly earnings call that he was unsatisfied with customer service and that the company needs more workers.
At the end of last year, even as travel was picking up, the number of employees at Hilton owned, leased and managed properties, as well as corporate facilities, was down more than 30,000 from the two previous years.
It's easy to see why customer service is a challenge.
According to a report last week from McKinsey on travel trends in the summer of 2022, revenue per available room in the United States “is exceeding not only the levels of 2020 and 2021, but also, increasingly, those of 2019".
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At airlines, the number of employees fell to 364,471 in November 2020, even though that was not supposed to happen.
US airlines accepted $54 billion in taxpayer aid to keep staff on their payrolls.
But while layoffs were prohibited, voluntary buyouts were not, and airlines like Delta and Southwest shed thousands of workers.
Last month, Delta said that since the start of 2021 it has added 18,000 employees, similar to the number it let go during the pandemic to cut costs.
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The industry is struggling to hire and train enough workers, especially pilots, a process that takes several weeks to meet federal standards.
Delta, American Airlines and Spirit Airlines have all recently cut their schedules to give themselves more wiggle room to meet operational challenges.
"The main problem we're solving is not hiring, but a bubble of training and experience," Delta CEO Ed Bastian said at last month's quarterly earnings call.
"If this is coupled with the lingering effects of COVID-19, we have seen a reduction in crew availability and an increase in overtime. Ensuring that capacity does not exceed our resources and working through our training pipeline , we will continue to improve our operational integrity," he said.
Travelers have not been so pleased.
During the July 4 weekend, more than 12,000 flights were delayed due to inclement weather and understaffing.
Pilots who took early retirement during the pandemic seem unwilling to change their minds now that their services are once again in high demand.
"When you look at travel-related labor shortages, you can't just flip a switch and suddenly have more security-cleared baggage handlers, or pilots," said Joseph Fuller, professor of management practices at the Harvard Business School.
“People don't choose to go back because they don't like what their employers dictate in terms of working conditions in a post-pandemic world,” he recalled.