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December 9, 2022
EDITORIALOP-EDOPINIONPOINTS OF VIEW

Labor force starting to feel the pressure of cost cutting

Macro commentary by eToro analyst for Romania, Bogdan Maioreanu

 There are hard times coming for some employees as companies reassess their development strategies and are trying to cope with increasing costs and decreasing margins and perspectives of a recession. Inflation already changed consumer behavior and is affecting demand. In their efforts to cut costs, usually the workforce is the one that is cut first.

In Romania the unemployment rate edged up to 5.2 percent in September 2022 from September’s near 2-year low of 5.1 percent a month earlier. The number of unemployed went up 10,200 from the previous month to 432,700.

Individual investors are also starting to feel the pinch as markets have been battered by rising interest rates, while many could see income drops from their regular jobs. However, in the latest eToro Retail Investor Beat survey, 59% of the Romanian investors showed confidence over their job situation. But 60% are not feeling very confident about their income and standard of living and 78% are not confident in the development of the Romanian economy. Similar results we have seen in the US where 75% of the investors are confident in their job situation.

 

In October, the unemployment rate in the US increased by 0.2 percentage point to 3.7 percent, up from September’s 29-month low of 3.5 percent and slightly above market expectations of 3.6 percent. Total nonfarm payroll employment increased by 261,000 with jobs created in healthcare, professional and technical services, and manufacturing.

But some mass layoffs are starting to be seen. The purchase of Twitter by Elon Musk resulted in nearly 3700 positions being slashed. However Musk mentioned in a tweet, that he had no choice when the company is losing 4 million dollars per day. There are reports that Meta Platforms is preparing layoffs as well in order to counter the weak performance of Facebook and Instagram combined with increased development costs for the Metaverse and associated hardware like Quest VR goggles. Other reports are mentioning upcoming layoffs in Wells Fargo Bank due to sharp decrease in mortgage demand due to increasing interest rates.

A recent report of  the global outplacement coaching firm Challenger, Gray & Christmas, Inc.is showing that the job cuts are increasing. U.S.-based employers announced 33,843 job cuts in October, a 13% increase from the September numbers and 48% higher than the cuts announced in the same month last year. By industry the Technology sector is leading followed by services and warehousing. In October, the main reason for job termination is the closing of the business followed by restructuring and cost cutting. On the other side, in October, employers announced plans to hire 237,380 workers, after a soft September total, the lowest since 2011 signaling that the labor market is still tight.

The US economy is slowing down as sales growth decelerates and profit margins contract according to a National Association of Business Economics survey. Despite this, sixty-three percent of respondents report that wages rose at their firms over the past three months putting pressure on costs.

This is bringing the necessity to use multiple strategies for cost cutting, a PWC survey revealed. In addition to layoffs, companies encourage voluntary retirement, are making performance-based cuts, are hiring freezes and not replacing people who leave. To drive growth, forty-four percent of the surveyed executives consider hiring in specific areas, 42% are planning cost cutting not including headcount reductions and 26% are planning to reduce the number of full-time employees. All these measures are considered important since 81% of the surveyed executives agree that there will be a recession in the next 6 months in the US.

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Bogdan Maioreanu, eToro analyst and markets commentator, has over 20 years of experience in financial services and investments and a strong background in journalism. He held different Corporate Banking management positions in both Raiffeisen Bank and OTP Bank, before moving to business consultancy roles working for IBM Romania among others. Bogdan is an Executive MBA from Asebuss and Washington University.

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