Why Amazon Plans to Cut 30,000 Jobs

SPEAKER_1 (0:00)

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Caitlin McCabe (0:33)

Amazon plans sweeping layoffs across its corporate workforce as it continues to pivot toward AI. Plus how China's restrictions on rare earths have led to boom times for Western companies in the space.

Jon Emont (0:47)

Western companies that really rely on Chinese rare earth magnets, they're going to want almost certainly another source. So it's hard to imagine anything that really disrupts the momentum of new investment into the Western rare earth sector.

Caitlin McCabe (1:01)

And a Republican-led panel takes aim at former President Joe Biden's executive actions and use of auto pen. It's Tuesday, October 28th. I'm Caitlin McCabe for The Wall Street Journal and here is the AM Edition of What's News. The top headlines and business stories moving your world today. We start today with big news from Amazon, which, according to people familiar with the matter, is planning to lay off as many as 30,000 employees or roughly 10% of its corporate workforce. The cuts could begin as soon as today, but it won't happen all this week. Human resources, cloud computing, advertising and a number of other business units are expected to be affected. The total number of reductions hasn't been finalized. Journal reporter Sean McLean says the cuts are significant and come as Amazon CEO Andy Jassy pushes ahead with a campaign to cut expenses after a period of aggressive hiring in the pandemic.

Sean McLean (2:05)

Well, it will be one of the largest layoffs in the company's history, and it underlines the pressure that large corporations, large tech companies, any big employer is having right now in the US. So in Amazon's case, they are having to drastically ramp up the amount they're spending on AI., cloud computing, all these big ticket items to compete with the likes of Google, Microsoft, and even Nvidia in the chips game. And at the same time, Amazon has been in a multi-year effort to really trim back costs after having expanded rapidly during the pandemic. So it's two things going on. Amazon wants to cut spending from what they saw as a period of over-exuberant growth, but at the same time, find cash to spend on AI.

Caitlin McCabe (2:55)

The move comes ahead of Amazon's quarterly results on Thursday. Sean says that like many companies at the moment, Amazon is eager to capitalize on AI as it seeks to do more with less.

Sean McLean (3:07)

The broader context really is this period of uncertainty in corporate America where job growth is slowing, the economy is less certain, prices are going up, consumer sentiment is down, and then you have this sort of ebb and flow of the trade war where are prices going to go up because of tariffs? Are they going to stick for how long? And all of that has CEOs from the East Coast to the West Coast, Andy Jassy of Amazon being no exception, looking for ways to do more with less. And one of the key ways you're seeing is with AI. So you're seeing CEOs wanting workers to be more productive with AI tools. In the case of Amazon, both white collar and blue collar are finding ways to have robots and AI tools enable head count to either reduce or slow down in growth without hurting business growth. And that's what's behind the move. Now Amazon's move is bolder than most. Amazon, until the last couple of years, hadn't been known for these huge headline-grabbing layoffs. And certainly this latest announcement seems to hit almost every corner of the business, at least on the white collar side.

Caitlin McCabe (4:16)

There was a collective sigh of relief at the end of last week when inflation numbers finally arrived, reaching 3% in September. This still exceeds the Federal Reserve's 2% target, but comes in below economists' earlier predictions. Now, Fed Chair Jerome Powell is widely expected to cut short-term interest rates by a quarter-percentage point tomorrow. However, the Journal's economics reporter, Conrad Puzier, explains that while the current data may be welcomed by industry experts, there's still widespread concern among everyday Americans about rising prices.

Conrad Puzier (4:53)

Two things have happened this year. On the one hand, inflation has not gone away, and if anything, inflation has picked up again. But that's not all. Inflation tends to be higher for middle and working-class Americans because price increases have often been higher for cheaper goods. At least that's what economist Alberto Caballo at Harvard, who studies prices at major retailers, has found. And basically what's happened is that cheaper goods have lower profit margins. And what that means is if you put tariffs on those goods, often retailers have no choice other than to raise prices because otherwise they lose money, whereas luxury goods, they have often massive profit margins, so retailers can just eat the tariffs. So what this means for working-class and middle-class Americans is that for many of them, the real inflation rate that they feel is much higher than the overall 3% number. The other part of it is that wage growth has really come down for middle-class, but especially for working-class Americans, for people with lower income wages.