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  • 💵 Layoffs Rising As Rates Peak

💵 Layoffs Rising As Rates Peak

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Layoffs are on the rise as companies tighten their belts and the global economy slows. Central banks want to leave rates on pause and quietly exit stage left. But for how long?

We'll start in South Korea where GDP contracted by 0.4% in Q4 2022. Some of the weakness is attributable to China's lockdowns, but the overall global environment isn't encouraging.

ING

ING sum it up here 👇

Korea's fourth quarter GDP contracted for the first time since the second quarter of 2020. We think that the impact of the cumulative interest rate hikes along with fading reopening effects have begun to slow down private consumption while weak global demand conditions are hurting Korea's exports.

Korea's economy is often seen as a leading indicator for the world, especially their export activity. Early January trade data shows that China's reopening hasn't given the exporters much of a boost as yet.

For the first 20 days of January, exports to China fell 24.4%, whereas shipments to the United States rose 18.1%

A global economic slowdown is top concern among Korean exporters.

The layoffs are coming thick and fast in earnings season too. Big tech companies such as Microsoft, Google and Amazon have stolen the headlines on this but they're far from alone.

LayoffTracker (US)

IBM missed the annual revenue target, reported 'higher than expected working capital needs', announced 3,900 job cuts and markets didn't seem to think that was enough.

Even as the firm reported their highest annual revenue growth in a decade...

Reuters

Germany's SAP, a Dax heavyweight, announced 3,000 job cuts: approximately 2.5% of their global roster.

SAP forecast core operating profit of 8.8-8.9 billion euros at constant currencies for this year. It also expects cloud revenue at constant currencies for 2023 to rise to 15.3-15.7 billion euros, from 12.56 billion euros last year.

Reuters has an excellent roundup of announced layoffs here - a few you may have missed 👇

  • 3M - 2,500 jobs

  • J&J 'might cut some jobs'

  • Phillips 66 - 1,100 jobs

  • Bed, Bath & Beyond - 20% of workforce (or more, let's be honest)

  • DoorDash - 1,250 jobs

  • Blue Apron - 10% of workforce

  • Beyond Meat - 200 jobs

  • Stripe - 7,000 jobs

  • Goldman - 3,000 jobs

  • HP - 6,000 jobs

  • Cisco - 5% of workforce

  • Salesforce - 10% of employees, plus office closures

Even companies that never make headlines because they do boring things like making elevators (or lifts in proper English) are cutting 1,000 jobs (1.6% of workforce).

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Even Mastercard is flagging slowing revenue growth as 'spending patterns have largely normalised'.

Then we've got Tesla. Up 10% in pre-market. Slashing prices and gearing up for a production ramp & price war because Musk sees the “pretty difficult recession this year” as an opportunity. He also thinks deflationary pressures win out.

 Reading through Tesla's earnings call, this looks like a hell of a gamble

Cutting prices in anticipation of deflationary pressures and improved production efficiencies. Win price war against established automakers.

They've got a little extra margin to play with but it's... bold pic.twitter.com/odYgUFjlsn— Tim (@VolaTim) January 26, 2023 

Energy companies will be sharing their record profits around. Chevron announced a plan to buy back $75 billion in shares (although it's not clear over what time horizon). They'll probably want to compete with Exxon's $50 billion buybacks over 2023/24.

No Growth

Then we look ahead to the future. The Bank of Canada got rates to 4.5% yesterday and called time. Peak rates and now let those lags work their magic. Governor Macklem says no growth is a good thing and just what's needed 👇

"We do need this period though of essentially no growth to allow supply to catch up. We do need to rebalance. Demand is running ahead of supply. We need to give supply a chance to catch up. That's a big part of reducing the inflationary pressures and that's a big part of restoring price stability. But I don't want to pretend that it's painless, it's not painless."

"I guess the way I would put it as with a projection of roughly zero growth for two to three quarters. What that means is it's just as likely that we'll have two or three quarters of slightly negative growth, slightly positive growth. So yes, it could be a mild recession. It's not a major contraction."

So we're going to have two or three quarters where the Canadian economy doesn't grow, it won't be painless, but it could be just a 'mild recession'.

This is the general plan across the developed world. The soft-landing.

As we've mentioned a few times now. The challenge isn't slowing the economy, it's nailing the turn. A soft landing can very quickly become a hard landing.

There's no doubt the business cycle has already turned. Everything's slowing. But that doesn't mean it ends in disaster. If inflation keeps falling and central banks can time the pivot just right...

OK, yeah I heard what I wrote. It's going to be a disaster...

It's another reason why the rampant risk appetite we've seen early this year makes little sense. Although next week's Fed meeting isn't expected to reveal much, it'd be no surprise if Powell decided to reinforce the higher for longer message and push back against those rate cut bets for the second half of the year.

However, the credibility of that message depends on the data. Inflation metrics tomorrow are expected to show Core PCE at 0.3% MoM alongside slower income growth and weaker spending.  

TradingEconomics