Household-name tech companies that are doling out pink slips to employees have a few things in common as they look to rebalance structural shifts in their businesses and set a path for better profits, new research from Goldman Sachs suggests.
"We find that three characteristics are common to many of the companies that have recently announced a large number of layoffs," Goldman Sachs chief economist Jan Hatzius wrote in a new client note. "First, many are in the technology sector. Second, many hired aggressively during the pandemic—on average, their headcount grew 41%—often because they over-extrapolated pandemic-related trends such as increases in demand for goods or time spent online. Third, they have seen sharper declines in their stock prices, which have fallen 43% from their peaks on average, and in some cases appear to be responding to investor demand to cut costs by shrinking their workforces rather than to a worsening in the demand outlook."
To be sure, the layoff announcements have come in hot and heavy in recent months.
To kick off February, Dell (DELL) announced Monday it would cut about 5% of its workforce — or 6,000 workers — amid a slump in PC sales. This round of layoffs will put Dell's headcount at its lowest level in six years following previous hiring freezes and cost-cutting measures, according to Bloomberg.
PayPal (PYPL) also announced last week it will be canning 7% of its workforce (around 2,000 people) as it stays focused on cost-cutting efforts after feeling pressure from activist investor Elliott Management.
In January, Salesforce (CRM) said it would slash 10% of its workforce and execute select real estate exits and office space reductions. Microsoft (MSFT) followed that news with 10,000 layoffs of its own. And Amazon (AMZN) then revealed 18,000 layoffs.
Economic bears continue to voice the concern that the layoffs are a sign of a sharply slowing U.S. economy, though Hatzius thinks that view is an overreach.
For one thing, the U.S. economy created an impressive 517,000 jobs in January, and job gains for November and December 2022 were also revised higher.
"These characteristics suggest that the companies conducting layoffs are not representative of the broader economy and that many of the recent layoff announcements do not necessarily signal a weaker demand picture that might have wider implications," Hatzius said. "It is also important to bear in mind that not every layoff translates into a lasting increase in unemployment because most workers find new jobs. In recent months, the job finding rate among unemployed individuals has been high by historical standards."