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New York (CNN Business)Two years ago, when the pandemic ushered in the sharpest economic downturn on record, it sparked a tidal wave of layoffs.
The subsequent recession was painful but mercifully short — technically, it lasted only two months. Since then, the economy has come roaring back. Unemployment in the US is near its lowest level in 50 years, and consumer spending has so far withstood historic inflation, keeping the economy afloat.
But over the past week, a spate of layoffs has added to investors’ fears that the wheels may be coming off.
On Wednesday, two US real estate companies that flourished in the pandemic era of low mortgage rates and ravenous demand, announced layoffs. Redfin (RDFN), which went on a hiring binge in recent years and employed nearly 6,500 people as of December, is cutting 8% of its staff.
“When we were turning away tens of thousands of customers in 2020 and 2021, we had to hire a thousand employees a month to catch up, requiring berserk levels of recruiting, training and licensing,” CEO Glenn Kelman wrote in a memo to staff. “There’s no avoiding that those groups will be hardest hit today.”
Redfin’s stock is down 80% this year. Meanwhile Compass, which employs 4,500 people, is axing 10% of its staff, citing “clear signals of slowing economic growth.”
The layoffs didn’t stop with housing. The whiplash in hiring is hitting tech and crypto hard. On Tuesday, crypto platform Coinbase abruptly laid off 18% of its staff, froze hiring and even rescinded job offers. CEO Brian Armstrong pointed to a possible recession looming and growth that happened “too quickly.”
Spotify plans to reduce hiring by 25%, according to Reuters. On the retail side, StichFix and Carvana are also making cuts.
And on Thursday, Elon Musk told Twitter (TWTR) employees the company “needs to get healthy” financially, suggesting job cuts could follow if his bid to acquire it goes through. That came just two weeks after Reuters obtained an email from Musk saying he wanted to lay off 10% of Tesla’s salaried staff because the CEO has a “super bad feeling” about the economy.
Step back: While all of those layoffs are painful and may trigger unwelcome flashbacks to the spring of 2020, it’s still too early to know whether they’re a harbinger of broader turmoil.
“A bunch of press releases from dozens of companies is still just a tiny, tiny, tiny fraction of the workforce,” labor economist Aaron Sojourner tells me.
“We’ve seen very fast, consistent job growth…so there’s a lot of reason to expect deceleration — whether it turns negative is not clear yet.”
Sojourner is in a unique position to know. Back in March 2020, he and fellow economist Paul Goldsmith-Pinkham were among the first to accurately predict the first avalanche of nearly 3.5 million layoffs in a single week — that was nearly three times the estimate offered by Goldman Sachs.
So far, he doesn’t see evidence of a broad pattern to suggest the strong labor market is going slack. That’s not a promise it won’t change, he says, but he’s still optimistic.
He’d caution bearish observers to keep in mind that a lot of our economic problems stem from things being too good. “People are complaining that consumers have too much money, they’re spending too much and driving up prices … Everybody’s working who wants to be working,” he says. “These are very high-class problems.”
Shoppers declare brick and mortar cool again
Economists have been predicting the demise of shopping malls for about as long as the internet’s been around. And when Covid-19 hit, it seemed like it might really be the end of brick and mortar.
Once again, those projections were overblown.
Consumers have apparently gotten tired of ordering everything while sitting on the couch, my colleague Nathaniel Meyersohn writes. More and more, they’re going back to the old-school way.
“As the pandemic has subsided, you’re seeing consumers get back to their pre-pandemic activities,” said Brian Nagel, who covers the retail sector at Oppenheimer & Co. Among those activities: going inside a real, physical store.
There are a few reasons for the shift.
- The rush to buy online in 2020 wasn’t just because we were bored — we didn’t have a choice. Shopping in person was a health hazard, even after “non-essential” stores were allowed to reopen.
- Online sales are softening as inflation discourages people from splashing out on big-ticket items. E-commerce stocks have been the worst-performing retail sector on the S&P 500 so far in 2022, declining 28% as of Monday, according to S&P Global.
- It’s just fun: “Shopping in stores is a social activity,” Nagel says.
Macy’s (M), the department store icon that just barely dodged bankruptcy during the height of the pandemic, says the pendulum has swung back in its favor.
“We saw a notable shift in consumer shopping behavior between channels, with better-than-expected sales in stores and lower-than-expected digital sales,” CEO Jeffrey Gennette said last month on a call with analysts.
Gennette said customers were coming into stores for formal attire — parties and weddings are back on the agenda, after all.
Crypto skeptics are relishing this moment
One needn’t look far in this bear market to find a crypto skeptic muttering, or sanctimoniously tweeting, “I told you so.” (Likely followed by an equally sanctimonious retort from the other side of the divide, given the tribalism that tends to accompany certain digital-asset-focused internet communities.)
This week, as bitcoin lost 30% of its value — a selloff that could make even crypto’s most steadfast believers wince — the entire ecosystem was shaken. Buzzy startups are laying off staff and suspending trading. In the case of crypto lender Celsius, which suspended all withdrawals this week, some users have found their savings stuck in a murky limbo.
The crypto faithful will say this is just life in the Wild West of finance. The lows are lower than in traditional investing, sure, but the highs are higher.
And of course, crypto isn’t the only asset that’s having a bad week. Virtually all equities are getting hit by tightening monetary policy, which has pushed investors away from bets on riskier assets such as tech stocks and bitcoin.
But crypto’s got unique problems.
It’s young — as in, born in 2009. The crypto market is almost completely unregulated, and it’s being propped up by hordes of celebrities and inexperienced investors who, if I had to bet, wouldn’t know a blockchain from a butter churn with a gun to their heads.
That’s why people like Bill Gates, Warren Buffett, Jamie Dimon, New York Attorney General Letitia James and a small but growing number of tech leaders are getting more vocal in warning the public and lawmakers about the risks of crypto investing.
But as young as the industry is, it’s already got a foothold in Washington, pouring millions of dollars into lobbying efforts in the past year. Lawmakers and regulators, meanwhile, have been woefully slow on the uptake.
The Celsius fallout may have lit a fire. Securities regulators in Alabama, Kentucky, New Jersey, Texas and Washington have opened an investigation into the Celsius decision to freeze accounts, Reuters reported Thursday.
“We are now seeing the consequences of regulators failing to provide clarity,” said Perianne Boring, founder and CEO of the Chamber of Digital Commerce. “I am hopeful that recent events will accelerate efforts to deliver clearer policies to the industry and certainty to those who invest in digital assets.”
US industrial production.
Next week: US stock markets are closed on Monday for Juneteenth.
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