The company is focused on new locations — and future economic conditions could also be a factor.
McDonald’s, a fast-food chain that has enjoyed solid sales in recent years, became the latest corporate giant to layoffs this week, according to a Wall Street Journal report. McDonald’s layoffs follow a series of tech, media and finance staff cuts at companies like Meta, Google and Amazon, although the broader job market has remained strong.
Layoffs at large companies are taking place at an unusual time for the economy. While unemployment has remained low, there is still uncertainty about whether a recession will set in in the coming months and what impact the US Federal Reserve’s interest rate hikes could have on future economic developments. Additionally, consumer spending, while solid, has slowed slightly and could be another factor for McDonald’s and others to worry about.
“This underscores the unusual economic situation we find ourselves in, with consumer spending remaining resilient enough to support business growth and frontline hiring, but recession fears leading to office job cuts,” said Daniel Zhao, Lead Glassdoor’s Economist.
The layoffs at McDonald’s — which are expected to focus on employees at the company — appear to be driven heavily by the company’s own business decisions and the company’s desire to expand. Earlier this year, McDonald’s CEO Chris Kempczinski announced the company would be shedding staff as it invests more to grow and open new locations in the US and Europe.
McDonald’s hasn’t expanded much in the US in the past decade, which the restaurant company wants to change, as it’s also working on innovations like a drive-through system with pre-ordering to reach more customers. The downsizing appears aimed at downsizing and consolidating teams that aren’t focused 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 are these redundancies to be viewed in the context of the labor market?
Experts note that the job market as a whole is still doing well, with heavily funded layoffs in tech and finance hurting a small fraction of jobs.
“What’s struck me is that layoff announcements, whether they’re coming from Silicon Valley giants or other industries, haven’t dented the strength of the job market,” said Andrew Flowers, labor economist at Appcast. Flowers notes that several industries, including leisure and hospitality, healthcare, government and retail, are still creating jobs at a steady pace, with some even continuing to suffer from labor shortages.
Overall, layoffs have picked up slightly in recent months, but they remain lower than pre-Covid levels, said Heidi Shierholz, the president of the Economic Policy Institute. “The unemployment rate is still near a 50-year low. Job growth remains very strong,” she said.
Many of the recent layoffs that have made headlines have been linked to factors specific to those industries or companies. In the tech space, a number of companies invested heavily in hiring during the pandemic to cope with a surge in demand, only to later witness that decline. Tech and banking have also been hit by rate hikes, which have reduced investment and made borrowing more expensive. However, as consumer spending has remained relatively flat, there have been fewer layoffs elsewhere.
“Consumer spending on these everyday items remains high, but the actual decline in business investment with rising interest rates is hitting the office industry hard,” Flowers said.
McDonald’s said its decision is related to the evolution of its business strategy, which includes efforts to spend more on new locations. Broadly speaking, it’s had strong sales in recent quarters, though the company has also raised concerns about ongoing inflation and higher costs. It has yet to announce how many employees have been affected, although it intends to notify people virtually this week.
“In a challenging macro environment, where most restaurant operators are facing their highest food and labor cost inflation in decades, alongside higher funding costs, it makes sense for McDonald’s to consider downsizing to support its margins and bottom line,” said CFRA Research analyst Siye Desta.
Consumer spending also grew more slowly in February and could be an indicator McDonald’s is watching, according to Georgetown economist Harry Holzer. “They’re looking at an economy with slowing retail sales and other warning signs and anticipating a slowdown,” Holzer said.
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