Is the economy heading toward mass layoffs? Not so fast, experts say

Tesla CEO Elon Musk has announced plans to cut the electric carmaker’s salaried workforce by 10% because he takes a stern stance on the position of the economy, a forecast made raised warnings about whether other companies would do the same.

Not so fast, economists say.

Leo Feler, senior economist for UCLA Anderson Forecasts.

The US jobs numbers released on Friday showed the economy continued to add a healthy number of jobs. And while some sectors have seen job cuts in recent months, the move appears to be limited to companies that have boomed during the pandemic – Peloton and Netflix, for example – and then must be fast. quickly adjust to a drop in revenue, or technology companies suffer market declines or lower valuations.

Musk sent a message to Tesla executives on Thursday, according to a Reuters report, saying he has “extremely bad feelings” about the economy and that Tesla should cut about 10% of its staff. salary, as well as halting global hiring as the company has become “overstaffed in many areas.”

In another email, Musk explained that this “won’t apply to anyone actually building cars, battery packs, or solar installations” and that “hourly headcount will increase.” , according to Reuters.

“His cutting non-manufacturing staff is really a statement about how the company is doing in terms of efficiency, not how the economy is doing,” Feler said.

Tesla workers are about to leave their night shift as they wait to board a bus at the company's Fremont, California, factory.

Tesla workers are about to leave their night shift as they wait to board a bus at the company’s Fremont, California, factory.

(Russ Mitchell / Los Angeles Times)

When asked at a Friday news conference about Musk’s comments, President Biden pointed to Tesla’s competitors Ford and Stellantis (formerly Fiat Chrysler), and said Ford recently announced the announcement. announced 6,000 new union jobs in three states. “So you know, a lot of luck on his trip to the moon,” Biden said of Musk.

However, the often provocative words of the world’s richest man can change markets and affect corporate sentiment more broadly, and they don’t appear in a vacuum. JPMorgan Chase CEO Jamie Dimon told investors on Wednesday to prepare for an economic “storm” caused by interest rate hikes and Russia’s war in Ukraine.

Mark Zandi, chief economist at Moody’s Analytics, said the job market would have to cool down or else the slump in new jobs and wage growth could exacerbate inflation.

The economy added 390,000 jobs in May, more than many analysts expected, and in line with monthly growth of around 400,000 jobs – not a typical picture for an economy where many People fear that they are on the brink of recession.

But job growth will eventually slow, and cuts will become inevitable as businesses reevaluate their boom-time hiring plans.

“The job market is booming, but it really has to slow down because the economy is so close to, if not full, employment. If it doesn’t slow down, the economy will blow away full employment, inflation will become persistent, and wage growth will exacerbate high inflation,” said Zandi. Full employment is when everyone who wants to work has a job.

Job growth will slow to about 150,000 jobs per month to reach a stable job market, he said, and that means “we will hear a lot of CEOs talking about pulling back on hiring plans.” , notice freeze or even lay off”.

It’s no wonder Musk is one of the first and biggest voices, Zandi said. “We should expect to hear more about this.”

Companies that have announced layoffs or hiring freezes since the beginning of the year have all attributed lower profits or higher costs.

In May, online car dealership Carvana said it would lay off 2,500 employees, or about 12% of employees, and Netflix announced a second round of layoffs of about 150 people because of a drop in subscribers and turnover. In another correction in the streaming market, Warner Bros. Discovery Inc. shut down its CNN+ streaming service in April, just weeks after it launched.

Cryptocurrency startups responded quickly to the market drop. Coinbase, the exchange, announced a hiring freeze, and Gemini Trust, another cryptocurrency exchange, said it would lay off 10% of its workforce.

To date, 66 tech companies have laid off staff by 2022, affecting more than 16,000 jobs, according to Layoffs.fyi, which tracks tech jobs. Twitter announced the hiring freeze and other cost-cutting measures last week.

At Tesla, layoffs are almost as volatile as the company’s stock.

Musk’s first business order after announcing he would take over as chief executive officer of the company in 2008, amid the global financial crisis, was to announce a round of layoffs. Staff. Subsequent layoffs have more to do with company problems than with the larger economy.

In 2017, after Tesla purchased Solar City, Musk announced he would cut 2% of Tesla and Solar City’s workforce in what he described as performance-related jobs. Many are contract workers.

In 2018, when experiencing severe production problems with the new Model 3, Musk announced that nearly 10% of Tesla’s workforce would be laid off. Later that year, he admitted that the company was “a few weeks away” from bankruptcy.

Analysts expect Tesla to report weak second-quarter results next month, largely due to the week-long COVID-19 shutdown at its Shanghai factory.

Economists expect to see job losses first in sectors that are particularly sensitive to high interest rates, such as housing. Several small and medium-sized mortgage lenders are cutting staff.

The retail sector lost 61,000 jobs in May, underscoring the continued shift in consumption patterns after pandemic restrictions were eased and people ventured back into the world.

“The retail slowdown corresponds to what we think consumers will do during the pandemic [conditions] Feler said.

The latest UCLA Anderson forecast predicts a slight increase in the unemployment rate, from 3.6% to 4.2% by mid-2023, as economic growth is expected to slow.

“But we also expect labor force participation to continue to grow, which means that unemployment will partly increase as more people look for work, not just because of the number of people looking for work. employment has fallen,” Feler said.

Times writers Russ Mitchell and Laurence Darmiento contributed to this report.

https://www.latimes.com/business/story/2022-06-06/musk-tesla-layoffs-us-economy-recession-jobs-employment Is the economy heading toward mass layoffs? Not so fast, experts say

Edmund DeMarche

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