Layoffs are piling up from Amazon to Compass as tech companies enter 2023 scrambling to get ahead of a possible recession

• Layoffs tend to peak in January. It often makes sense for companies to adjust their budgets then.
• Now many tech companies are conducting layoffs in anticipation of a recession.

Happy New Year! Don't let the door hit you on the way out!

For all the layoffs that swept corporate America in the final months of 2022, this month is poised to bring even more. January is historically the worst month for layoffs according to US government data and some companies are looking to trim costs ahead of a possible recession.

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It's a double whammy that could make for a tougher-than-usual January, at least for tech companies that bulked up during early years of the pandemic.

Amazon's CEO, Andy Jassy, has already told staff that the company would cut just over 18,000 employees, the largest layoff in the company's history. And the real-estate brokerage Compass let employees know it would be conducting its third round of layoffs in less than eight months. Salesforce said this week it would cut 10% of its workforce.

The tech retreat sets the industry apart from many others where cutbacks haven't been widespread. Indeed, fresh numbers Friday showed the US economy continued to add jobs at a reasonable clip in December. Yet some corporate leaders worried about the year ahead would still prefer to play it safe.

New year, new headcount

There are many reasons why January tends to be a popular month for layoffs, Cary Cooper, a professor of organizational psychology at the University of Manchester, told Insider.

For starters, it's practical: January 1 marks the beginning of a new financial year for most companies, and so taxwise, it makes sense for companies to make adjustments to their budgets and reduce labor costs, he said. It's also a time when employers are asking themselves: "What are we doing this year? What's not going well? Can we change this or restructure that?"

Companies also often make cuts after the holidays so as "not to be perceived as Scrooge-like," Cooper said. "There's an element of not wanting to do it over the Christmas season," he said. "Instead, we will ruin your New Year after you spent all that money on presents."

Another reason for a sober outlook

For many companies, the fear of a recession warrants a cut-now approach. After huge portions of the global economy wilted overnight with the start of the pandemic, it's little surprise that some corporate leaders would be leery of another slowdown. Indeed, 70% of economists surveyed by Bloomberg predicted the US would enter a recession in 2023.

This mix of worry about a recession and CEOs' desires to bring down costs means more layoffs are likely.

Investment bank RBC warned on Wednesday that the latest job cuts at Salesforce signal that other software companies — particularly ones that, like Salesforce, got too big too fast in recent years — will likely look to trim bloated payrolls.

So far the tech-sector retrenchment hasn't dinged the broader job market. The latest data from the Labor Department showed that overall layoffs have stayed low. The economy added 223,000 jobs in December, topping economists' expectations. For 2022, the US added 4.5 million jobs, one of the strongest-ever annual showings.

While some observers think any coming downturn could prove mild — Moody's Analytics is predicting a "slowcession" where the economy would soften but not shrink — leaders of companies want to be sure they're not caught unprepared.

"Even if the US doesn't go into a recession, the companies it trades with are, and so they're trying to keep labor costs down so they remain competitive," Cooper said.

The first cut isn't always the deepest

Conducting multiple rounds of layoffs isn't a common practice, but it's not unheard of, either. Of the 433 tech companies that Crunchbase tracked, roughly 9% conducted more than one round of layoffs in 2022.

Beyond Compass, other companies that have conducted more than one wave of layoffs in the past year include Salesforce, Stitch Fix, Vimeo, Lyft, Snap, and Better.

Amazon's 18,000 job cuts, which will affect about 6% of its corporate roles, are more than the 10,000 job cuts the company had been expected to make in the fall, though Jassy had cautioned there could be more. The company started letting thousands of workers go last year, The Wall Street Journal reported.

Multiple rounds of layoffs can leave staff feeling insecure — not knowing whether they'll wake up to a foreboding email from human resources. Not to mention that laying off staff a second — or third — time in a matter of months can potentially tarnish your brand reputation.

"If I am an employee in a company that's going through multiple rounds of layoffs unexpectedly, I'm losing faith in the business and I'm living in fear," Nolan Church, who previously ran talent teams at Carta and Doordash, told Keerthi Vedantam at Crunchbase News.

Joel Gascoigne, the CEO of the social-media-management platform Buffer, previously told Insider that when he was conducting layoffs in 2016, one of the best pieces of advice he received was to "make sure you overcommunicate that this is the end of the crisis" when the layoffs are over.

To the extent that it's possible, it's important to give your remaining staff a sense of stability. Gascoigne said it's critical to "cut deep enough, cut enough costs that you can be confident that you are not going to have to do something else in three to six months."