In an antithesis to the sluggish economic growth, indicated by annualized GDP growth rate of 1.1% in the first quartera of fiscal 2023 and a greater-than-expected decline in job openings in March to its lowest level in nearly two years, non-farm payrolls beat expectations to grow by 253,000 in April.
An earlier release by the payroll processing firm ADP foreshadowed this acceleration in job growth. According to the report, private payrolls rose by 296,000 for April, above the downwardly revised 142,000 the previous month, comfortably beating the estimate for 133,000.
However, three businesses that certainly didn’t share the optimism were Dropbox, Inc. (DBX), BuzzFeed, Inc. (BZFD), and Clubhouse Media Group, Inc. (CMGR). All of them added to the laundry list of U.S. companies lightening up on headcount in response to macroeconomic uncertainty and turbulence due to rising costs of inputs, including (and especially) capital.
Perplexed? We understand. That’s why, in this article, we attempt to go beyond the headlines and read between the lines to make sense of the roller coaster of economic data and hopefully set the record straight.
On April 27, collaboration platform DBX announced that it would be laying off 500 employees, which equates to about 16% of its workforce. According to CEO Drew Houston, this decision was in response to slowing growth due to the maturation of the business and the impact of negative headwinds on its customers.
DBX, which is on course to merge its Core and Document Workflows businesses, is also facing an imperative to focus on AI-powered products, which require completely different skill sets.
In the penultimate week of April, digital media company BZFD decided to shut down its news unit and lay off 180 people, accounting for 15% of its staff. The layoffs would affect the company’s business, content, administration, and tech teams.
With 100 employees, BuzzFeed News, which differentiated itself from the viral-content-generating brand with straightforward, insightful, and investigative reporting to win a Pulitzer Prize in 2021, lost the company about $10 million each year.
With advertising expenditure reduced amid macroeconomic headwinds, CEO Jonah Peretti succumbed to pressure from large shareholders to shut down its news operations.
On April 27, social media firm and digital agency CMGR, which was hyped to a valuation of $4 billion during the pandemic, announced that it would be laying off half its staff in what the company has dubbed as hitting the “reset” button.
Job cuts in all the businesses mentioned above seem tied by a common thread. We went from living in a largely virtual world of virtually free money, marked by a target federal funds rate of 0% to 0.25%, to a reality check in which people found life outdoors, and ten consecutive interest-rate hikes have taken the fed funds rate to a range of 5%-5.25%.
In this new world:
Businesses hyped on debt-fueled growth have been purged to make way for the ones with solid fundamentals and consistent profitability.
White-collar generic and repetitive jobs are being automated away while businesses can’t find enough specialists to design and implementing artificial-intelligence-led automation and blue-collar workers to take care of work that is yet to be automated.
Due to growing efficiencies (read reduced headcounts) and financial resilience of most blue-chip companies, the great ‘soon-to-be’ recession is always six months away.
Beyond the headline numbers at the beginning of the article, the above economic outlook is validated by:
Layoffs and discharges in March jumped by 248,000, taking the rate as a share of the workforce up to 1.2% from 1%.
Orders for manufactured goods increased by 0.9% in March, less than the 1.3% estimate.
In April, the financial and manufacturing sectors lost 28,000 and 38,000 jobs, respectively, while the fastest growth was witnessed in the leisure and hospitality sector.
While an exuberant market is optimistic about a much-coveted “soft-landing” and seems to have priced in a pause in interest rate hikes by the Federal Reserve, a 4.2% rise in the PCE for the quarter against the estimate of 3.7% compels us to question: Are we out of the woods yet?
