Data Shows That Finance And Health Care Will Be The Next Big Job Cuts

Another week, another round of layoffs—this time Meta Platforms Inc. is adding thousands more to the 11,000 workers it let go in November, according to Bloomberg News.

‍

Which sectors could be seeking to lay off additional employees even after the tens of thousands of layoffs we've witnessed in recent months? According to an examination of profits and stock performance, the financial and healthcare industries hold the key.

‍

Here's how I arrived at that judgment. There are 105 firms in the S&P 500 whose revenue per employee—the typical amount of income produced by each employee—has decreased from pre-pandemic levels, or as of 2019. It serves as a reasonable indicator of how effectively a business is managed. When headcount growth outpaced sales growth, it either signifies that sales have decreased or that management recruited new employees more quickly than the company could grow.

‍

Almost 60 of the 105 equities have done better than the general market during the previous 12 months. One can draw the conclusion from this that the leadership team is under less pressure to turn the company around and increase profitability. Of course, that won't always be the case. Because of its previous layoffs, Meta has done better than the S&P 500, but that doesn't seem to be deterring Chief Executive Officer Mark Zuckerberg from eliminating more positions. The social media behemoth saw one of the worst declines in revenue per employee among the index's businesses, falling 14% between 2019 and 2022.

After eliminating such companies, there are 45 equities left that are both underperforming the market as a whole and experiencing diminishing sales per employee. Ten healthcare firms are followed by 12 finance enterprises as the largest cohort within that group. A few of the well-known brands in the sector are the financial giants Bank of America and Citigroup, each of which has hundreds of thousands of workers, as well as the Minneapolis-based Medtronic, which manufactures medical equipment.

‍

They are really overrepresented compared to the weight they have in the S&P 500, which is why there are so many businesses from those two sectors on my list. Their overrepresentation in the index as a whole is another factor.

‍

Another major behemoth that has already announced significant headcount cutbacks is Amazon.com Inc. Yet, the 18,000 positions it eliminated make up just 1.2% of the 1.5 million employees the corporation will have by the end of 2022. The lieutenants of founder Jeff Bezos may decide there is room for more cuts given that the stock is still selling at historically low levels in relation to predicted earnings.

‍

Before turning to personnel cuts, companies can use other levers to boost sales and profit growth. Nonetheless, activist investors on the hunt for targets may point to the "bloated workforce" as proof of existing management's lack of discipline, even if executive teams are pleased to maintain their current employment levels. The bad news might not yet be finished for America's struggling workforces.

‍