While President Joe Biden's administration grapples with defining exactly what a recession is, there are growing signs that the U.S. is heading into one.
The U.S. economy, the world's largest, shrank for a second consecutive quarter over the three months ending in June, Commerce Department data is expected to confirm later this week, but the debate as to whether it's slipped into recession is likely to continue for a long time after.
As Wall Street waits for earnings from big tech companies like Alphabet (GOOGL), Meta (META), Apple (AAPL), Amazon (AMZN), and Microsoft (MSFT) this week, investors should get a glimpse of just what Silicon Valley thinks will happen with the economy through forecasts.
Last week, Bloomberg reported that Apple plans to slow hiring and spending in some of its divisions next year. Meta told the Washington Post that it would "make changes to some parts of its business because of the larger economic environment."
Last month, Tesla (TSLA) closed its San Mateo office and laid off 200 employees in an effort to cut costs. Those cuts came just days after CEO Elon Musk said he had a "super bad" feeling about the economy.
And now online retailer Shopify (SHOP) has announced plans to cut costs by cutting its headcount.
Shopify Layoffs
On Tuesday, the Wall Street Journal reported Shopify planned to lay off 10% of its workers in a "broad shake-up."
The company confirmed the report later Tuesday morning in a news bulletin addressed to its "team," which the company said would "involve fewer teammates than we have picked up along the way."
Shopify plans to cut about 10% of its headcount by the end of the day with most of the job losses coming from its recruiting, support, and sales staff.
The company said it is also eliminating "over-specialized and duplicate roles," and other roles that the company called "convenient but too far removed from building products."
Shopify blamed shifting attitudes about online retail in a post-covid world as more customers return to brick and mortar stores.
The company had anticipated that channel mix between e-retail and brick and mortar would "permanently leap ahead by 5 or even 10 years." That bet led to an increase in hiring activity that Shopify says it is now correcting.
"It’s now clear that bet didn’t pay off. What we see now is the mix reverting to roughly where pre-Covid data would have suggested it should be at this point. Still growing steadily, but it wasn’t a meaningful 5-year leap ahead," CEO Tobias Lutke said.
Shopify had about 10,000 employees at the end of 2021, according to Macrotrends, a nearly 43% year over year increase from 2020.
Signs of Economic Pain
Shares of Walmart (WMT), the world's largest physical retailer, dropped sharply Tuesday after the company cut its second quarter and full-year earnings forecasts due to higher-than-expected inventory levels and ongoing inflation pressures that have cut into profit margins.
Walmart said operating income will likely decline by between 13% to 14% over its fiscal second quarter, which ends in July, and between 11% and 14% for the full year. Adjusted earnings are forecast to slide between 8% and 9% for the second quarter, and 11% to 13% for the year, a sharp decline from its May forecast of just a 1% pullback.
Walmart, which saw a 33% increase in overall inventories last quarter, said in early May that it would keep prices "as low as we can" in order to shift inventories over the coming months.
"The increasing levels of food and fuel inflation are affecting how customers spend, and while we've made good progress clearing hardline categories, apparel in Walmart U.S. is requiring more markdown dollars," said CEO Doug McMillon. "We're now anticipating more pressure on general merchandise in the back half; however, we're encouraged by the start we're seeing on school supplies in Walmart U.S."
