McDonald’s, a fast food chain that has brought in solid sales in recent years, became the latest corporate behemoth to engage in layoffs this week, according to a Wall Street Journal report. McDonald’s layoffs follow a string of staff cuts in tech, media, and finance at companies like Meta, Google, and Amazon, even as the broader labor market has remained strong.
Layoffs at big businesses are occurring during an odd time for the economy. While unemployment has stayed low, there’s still uncertainty about whether a recession will arrive in the months to come, and what impact the Federal Reserve’s interest rate hikes could have on the economy moving forward. Additionally, consumer spending, while solid, has slowed slightly, and could be another factor McDonald’s and others are concerned about.
“This highlights the unusual economic situation we’re in where consumer spending remains resilient enough to support business growth and hiring for front-line workers, but fears of recession are leading to cuts for office jobs,” said Glassdoor’s lead economist, Daniel Zhao.
The McDonald’s layoffs — which are expected to focus on corporate employees — appear to be driven heavily by the company’s own business decisions and interest in expansion. Earlier this year, McDonald’s CEO Chris Kempczinski announced that the company would cut staff as it invests more in growing and opening new locations in the US and Europe.
McDonald’s hasn’t expanded much in the US in the last decade, something the restaurant company intends to change as it also works on innovations, like an order-ahead drive-through system, to reach more customers. The staffing cuts, it seems, are aimed at trimming and consolidating teams that don’t focus on such priorities.
“It sounds like they want to reorganize the company into different structures to grow faster,” BTIG LLC analyst Peter Saleh told Bloomberg in January. “Maybe they feel like they don’t have the right people in place.”
How to think about these layoffs in the context of the labor market
The labor market as a whole is still doing well, experts note, with prominently covered layoffs in tech and finance impacting a small proportion of jobs.
“What I’ve noticed is that layoff announcements, whether they come from Silicon Valley giants or other industries, have yet to put a dent in labor market strength,” said Andrew Flowers, a labor economist at Appcast. Flowers notes that multiple industries, including leisure and hospitality, health care, government, and retail, are still adding jobs at a consistent pace, with some even continuing to experience labor shortages.
Layoffs overall have increased slightly in recent months, but they remain lower than pre-Covid rates, said Heidi Shierholz, the president of the Economic Policy Institute. “The unemployment rate is still near 50-year lows. Job growth is still very strong,” she said.
Many of the recent layoffs, which have grabbed headlines, have been tied to factors specific to those industries or companies. In the case of tech, a number of companies invested heavily in hiring during the pandemic in order to address a surge in demand, only to see that decline later. Tech and banking have also been affected by hikes in interest rates, which have led to reduced investments and made loans more expensive. Because consumer spending has stayed relatively consistent, however, there have been fewer layoffs in other fields.
“Consumer spending remains strong on these everyday items, but the actual pullback in business investment, with rising interest rates, is hitting white-collar industries hard,” said Flowers.
McDonald’s has said its decision is related to its business strategy moving forward, which includes efforts to spend more on new locations. Broadly, it has had strong sales in the last few quarters, though the company has also expressed worries about ongoing inflation and higher costs. It has yet to disclose how many employees have been affected, though it has said it intends to notify people virtually this week.
“In a challenging macro environment, where most restaurant operators are facing the highest food and labor cost inflation in decades along with higher financing costs, it makes sense for McDonald’s to look at headcount reductions to support its margins and bottom line,” said CFRA Research analyst Siye Desta.
Consumer spending also saw slower growth in February and could be an indicator that McDonald’s is watching, according to Harry Holzer, an economist at Georgetown. “They are looking at an economy with retail sales slowing and other warning signs, and they are anticipating a slowdown,” said Holzer.