Companies — profitable or not — make 2024 the year of cost cuts
Layoffs are illustrated by an oversized pair of scissors, that looms over seven workers sitting in office chairs suspended by strings. Mathisworks | Digitalvision Vectors | Getty Images

Layoffs, flight cuts and store closures

Shifting patterns

Industry experts have chalked up some recent cuts to companies catching their breath — and taking a hard look at how they operate — after an unusual four-year stretch caused by the pandemic and its fallout. EY's Daco said the past few years have been marked by a mismatch in supply and demand when it comes to goods, services and even workers. Customers went on shopping sprees, fueled by government stimulus and less experience-related spending. Airlines saw demand disappear and then skyrocket. Companies furloughed workers in the early pandemic and then struggled to fill jobs. He said he expects companies this year to "search for an equilibrium." "You're seeing a rebalancing happening in the labor markets, in the capital markets," he said. "And that rebalancing is still going to play out and gradually lead to a more sustainable environment of lower inflation and lower interest rates, and perhaps a little bit slower growth." The auto industry, for example, faced a supply issue during much of the Covid pandemic but is now facing a potential demand problem. Inventories of new vehicles are rising — surpassing 2.5 million units and 71 days' supply toward the end of 2023, up 57% year over year, according to Cox Automotive — forcing automakers to extend more discounts to move cars and trucks off dealer lots. Automakers have also been contending with slower-than-expected adoption of EVs. David Silverman, a retail analyst at Fitch Ratings, said companies are "feeling a bit heavy as sales growth moderates and maybe even declines." Cost cuts at UPS, Hasbro and Levi all followed sales declines in the most recent fiscal quarter. Macy's, which reports earnings later this month, has said it expects same-store sales to drop, and there's early evidence that may come to bear: Consumers pulled back on spending in January, with retail sales falling 0.8%, more than economists expected, according to the latest federal data. Most major retailers, including Walmart, Target and Home Depot, will report earnings in the coming weeks. Credit ratings agency Fitch said it doesn't expect the U.S. economy to tip into recession, but it does anticipate a continued pullback in discretionary spending. "Part of companies' decision to lower their expense structure is in line with their views that 2024 may not be a fantastic year from a top-line-growth standpoint," Silverman said. Plus, he added, companies have had to find cash to fund investments in newer technology such as infrastructure that supports e-commerce, a resilient supply chain or investments in artificial intelligence.

Forward momentum