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Jay Powell has a Daniel Ek problem: Morning Brief

After getting "carried away," Ek and tech are contracting, but the U.S. labor market isn't.

This article first appeared in the Morning Brief. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe

Wednesday, February 1, 2023

Today's newsletter is by Myles Udland, Head of News at Yahoo Finance. Follow him on Twitter @MylesUdland and on LinkedIn. Read this and more market news on the go with the Yahoo Finance App.

The Federal Reserve's first meeting of the year wraps up later today, with investors expecting the central bank to raise interest rates by another 0.25%.

Fed watchers will be focused on what the chair has to say about future interest rate increases and whether rate hikes stop in March, May, or a point further down the calendar.

But outside the walls of the Marriner Eccles Building, the Fed faces a growing challenge as companies pare back investments made during the go-go days of 2021.

Moves which suggest to the investing public the corporate world stands on the brink of a major downturn, yet which come at a time economic data continues to show a resilient economy and labor market.

Comments made Tuesday by Spotify (SPOT) CEO Daniel Ek serve to our mind as a great encapsulation of the mixed signal this retreat from profligate spending presents.

SUN VALLEY, ID - JULY 11: Daniel Ek, co-founder and chief executive officer of Spotify, attends the annual Allen & Company Sun Valley Conference, July 11, 2018 in Sun Valley, Idaho. Every July, some of the world's most wealthy and powerful businesspeople from the media, finance, technology and political spheres converge at the Sun Valley Resort for the exclusive week-long conference. (Photo by Drew Angerer/Getty Images)
Daniel Ek, co-founder and chief executive officer of Spotify, attends the annual Allen & Company Sun Valley Conference, July 11, 2018 in Sun Valley, Idaho. (Photo by Drew Angerer/Getty Images) (Drew Angerer via Getty Images)

Ek told investors he got "carried away" making investments in growing the team and bringing in expensive, exclusive content, among other initiatives.

"My expectation was never that these investments would have a great impact in the short term, yet they have," Ek said. "But things change, and the macro environment has changed significantly in the last year. And in hindsight, I probably got a little carried away and over-invested relative to the uncertainty we saw shaping up in the market. So we are shifting to focus on tightening our spend and becoming more efficient."

Tech cuts may just be the beginning

In late January, Spotify announced it had cut 6% of its staff. As of its latest public disclosure in early 2022, the company employed around 6,600 workers at the end of 2021, up from 5,500 in 2020, and 4,400 in 2019.

So even if we assume the company added no workers between filing its annual report with the SEC in February 2022 and when job cuts were announced in January 2023 — which, for a company that just said they got "carried away" investing, is likely not a fair assumption — headcount has still grown notably over the last several years.

As Yahoo Finance's Daniel Howley wrote over the weekend and as the chart above shows, jobs cuts announced by the likes of Microsoft (MSFT), and Alphabet (GOOGL), and Amazon (AMZN) are mere paper cuts relative to the hiring these companies have been doing of late.

In Spotify's case, if we use that last 6,600 number (and again, it's likely more than that), a 6% cut only brings us down to 6,204 — far above the 2020 numbers.

In December, the U.S. economy added 223,000 jobs. On Friday, economists expect the January jobs report will show another 185,000 jobs were created last month. Chipotle (CMG) is hiring 15,000 workers. Walmart (WMT) just gave all of its hourly workers a raise.

So when Jay Powell appears before the media later this afternoon to explain the Fed's thinking on raising rates, the backdrop of near-daily job cuts coming from the tech industry — and beyond — will color questions about the state of the labor market.

The problem for Powell, however, is that these job losses are what the Fed hoped to achieve. Comments like what we heard from Ek this week are the beginning, not the end, of the Fed's efforts to slow the economy.

The labor market is slowing down. Areas of the economy that may have gotten "carried away" are correcting course.

But an outright contraction in the U.S. economy's workforce appears to be some ways off.

Which is why Powell continues to insist there remains "more work to do" in keeping rates high. Even if the pain has already been felt by industry leaders like Daniel Ek.

What to Watch Today


  • 7:00 a.m. ET: MBA Mortgage Applications, week ended Jan. 27 (7.0% during prior week)

  • 8:15 a.m. ET: ADP Employment Change, January (170,000 expected, 235,000 during prior month)

  • 9:45 a.m. ET: S&P Global U.S. Manufacturing PMI, January Final (46.8 during prior month)

  • 10:00 a.m. ET: Construction Spending, month-over-month, December (0.0% expected, 0.2% during prior month)

  • 10:00 a.m. ET: ISM Manufacturing, January (48.0 expected, 58.4 during prior month)

  • 10:00 a.m. ET: JOLTS Job Openings, December (10.300 million expected, 10.458 million during prior month)

  • 2:00 a.m. ET: FOMC Rate Decision (Lower Bound), Feb. 1 (4.50% expected, 4.25% prior)

  • 2:00 a.m. ET: FOMC Rate Decision (Upper Bound), Feb. 1 (4.75% expected, 4.50% prior)

  • 2:00 a.m. ET: Interest on Reserve Balances Rate, Feb. 2 (4.68% expected, 4.40% prior)

  • WARDS Total Vehicle Sales, November (15.50 million expected, 13.31 prior month)


  • Meta Platforms (META), Aflac (AFL), Allstate (ALL), Boston Scientific (BSX) e.l.f. Beauty (ELF), eBay (EBAY), Evercore (EVR), Humana (HUM), McKesson (MCK), Meritage Homes (MTH), MetLife (MET), Novartis (NVS), Old Dominion (ODFL), Peloton Interactive (PTON), Thermo Fisher Scientific (TMO), Waste Management (WM)

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