Weekly Business Roundup
Publication 15- Snap Inc. Plans to Cut 20% of it's Workforce, Eurozone Inflation Tops 9%, and NASA Postpone Major Rocket Launch
Published Sunday, September 4th 2022
This week, the Federal Trade Comission began investigating Amazon’s deal to buy 1Life Healthcare Inc., the Labor Department’s August jobs report showed a slightly loosening labor market, and a U.S District Judge’s order resulted in the release of detailed FBI inventory of material seized at Trump’s Mar-a-Lago Home.
Business
Snap Hits Reverse After Expansion Drive, Cutting 20% of Staff
This spring, with the digital ad market in turmoil, Snap Inc. was busy adding staff and launching new initiatives, including a camera drone and a content push for its “Originals” scripted videos with a series starring gymnast Simone Biles.
Snap Inc.
Now Snap is pulling back on its ambitions, announcing on Wednesday plans to slash a fifth of its workforce as part of a strategic reorientation that underlines just how sharply its fortunes have turned in the face of a series of challenges to its business. The social-media company said it is reining in investment on a range of areas, abandoning initiatives including its in-house “Originals” programming and grounding the drone project.
As it grapples with its lowest period of sales growth since going public, the Snapchat parent is emerging as one of the starkest examples of a tech company shifting from overdrive into reverse. After having grown its head count by around 65% since the end of 2020, it hit pause in late May as business conditions deteriorated. Within weeks, management determined that wasn’t enough, culminating in plans to tell around 1,200 of its 6,400 employees that they are losing their jobs.
“We must reduce our cost structure to avoid incurring significant ongoing losses,” Chief Executive Evan Spiegel said in a memo to staff.
Snap Inc. Chief Executive, Evan Spiegel
Across tech, companies are abandoning projects they no longer consider critical to ease pressure on their bottom line. Ride-hailing company Lyft Inc. has hit the brakes on renting its cars to riders and cut staff; Facebook parent Meta Platforms Inc. has said it would shrink some teams as it adjusts priorities and software giant Microsoft Corp. is trimming its staff at its Modern Life Experiences group that develops consumer software products.
The upheaval in the digital ad business that generates the bulk of Snap sales has been particularly pronounced. Last year Apple Inc. introduced privacy changes that make it harder for platforms to track the performance of the ads they sell. Then Russia’s invasion of Ukraine in February, rising inflation and a broader economic slowdown caused some ad buyers to pull back on spending.
The slowdown in ad revenue for Snap was swift and steep, the company has signaled. As recently as the first quarter, revenue growth was 38% year-over-year. It is now down to around 8%, the company said Wednesday.
“We must reduce our cost structure to avoid incurring significant ongoing losses”
FTC Investigating Amazon Deal to Buy One Medical Network of Health Clinics
The Federal Trade Commission is investigating Amazon.com Inc.’s $3.9 billion deal to buy 1Life Healthcare Inc., which operates One Medical primary care clinics in 25 U.S. markets.
1Life, which went public in 2020, disclosed the investigation in a securities filing. The disclosure says One Medical and Amazon each received a request on Friday for additional information about the deal from the FTC.
Amazon’s bid for One Medical added momentum to the push by technology and retail giants to make inroads into the nation’s $4 trillion healthcare economy. The deal was the first major acquisition announced during the tenure of Chief Executive Andy Jassy, for whom expansion into healthcare is a priority.
Amazon Inc. Chief Executive, Andy Jassy
The FTC’s move to investigate the deal could delay its completion as federal competition investigations often take months to finish. Significant U.S. antitrust probes on average take about 11 months, according to data compiled by law firm Dechert LLP.
FTC Chairwoman Lina Khan is a critic of Amazon, having written a 2017 law review article that argued Amazon’s conglomerate-like structure shouldn’t have escaped antitrust scrutiny. Ms. Khan said Amazon’s entry into businesses beyond its e-commerce platform allowed it to gather data it could use to undercut other companies.
The FTC is investigating Amazon’s Prime membership program, according to a legal petition Amazon filed last month. The company argued that FTC staff had made excessive demands on founder Jeff Bezos and other company executives and asked officials to quash the subpoenas.
Amazon Inc. Founder, Jeff Bezos
An Amazon spokeswoman declined to comment.
Mr. Jassy is focused on healthcare as an industry in which Amazon could find significant growth opportunities. The company recently revealed that it plans to shut down a healthcare unit it launched in 2019 called Amazon Care after it announced the One Medical deal.
The transaction would give Amazon more than 180 clinics with employed physicians across roughly two dozen U.S. markets. One Medical Chief Executive Amir Dan Rubin is expected to remain as CEO once the deal closes.
Economics
August Jobs Report Shows U.S. Added 315,000 Jobs
The tight U.S. labor market loosened some in August as employers hired fewer workers, more people sought work and wages rose at a slower pace.
Employers added 315,000 jobs last month, down from the prior month’s revised 526,000 jobs, the Labor Department said on Friday, with new jobs spread across the economy. The deceleration marked a pullback from robust gains that characterized much of the past two years. Still, job growth remained well above the prepandemic trend, pointing to continued labor-market strength.
The jobless rate rose to 3.7% in August from a half-century low of 3.5% the prior month. The increase in the unemployment rate reflected more workers entering the labor force. The share of adults working or seeking a job rose to 62.4% in August from 62.1% in July, as participation among women ages 25 to 54 jumped.
The rise in labor-force participation—along with other signs such as lower average weekly hours worked—suggested employers are finding it easier to hire. That could help ease wage pressures in the coming months. The Federal Reserve is closely watching the health of the labor market and wages trends, an important factor in the outlook for inflation.
Average hourly earnings rose 5.2% in August from a year earlier, in line with the previous month and down from a recent peak of 5.6% in March. On a month-to-month basis wage increases slowed in August compared with July.
The figures keep the Fed on track to raise interest rates by either 0.5 or 0.75 percentage point at its meeting later this month to combat high inflation.
“In all, the data suggest labor market conditions are beginning to slow more markedly, which we expect will contribute to weaker economic growth over the coming years,” said Michael Pearce, senior U.S. economist at Capital Economics.
Some signs point to an economy that is rapidly cooling under the weight of high inflation. The Fed is raising interest rates to slow the economy and curb price increases. Some major employers, including Ford Motor Co. , Snap Inc., T-Mobile US Inc. and Wayfair Inc., have announced job cuts in the past few weeks. Gross domestic product shrank in both the first and second quarters of the year, according to the Commerce Department.
This year’s tight labor market followed steep pandemic-driven job cuts in early 2020 that left the U.S. economy with about 22 million fewer jobs. As employers clawed those jobs back, payrolls grew by a monthly average of about 800,000. Now that payrolls are slightly above their prepandemic peak, rehiring is set to fade as a source of job growth in many sectors, according to economists.
“In all, the data suggest labor market conditions are beginning to slow more markedly, which we expect will contribute to weaker economic growth over the coming years”
Inflation Tops 9% in Eurozone, Piling Pressure on Policy Makers
Inflation in the eurozone rose to a fresh record in August, underscoring the economic shock dealt by Russia’s war in Ukraine and increasing the pressure on the European Central Bank to respond by raising interest rates aggressively next week.
European Central Bank Headquarters, Frankfurt, Germany
Eurozone consumer prices were 9.1% higher than a year earlier, a pickup from the 8.9% rate of inflation recorded in July, the European Union’s statistics agency said Wednesday. That is the highest rate since records began in early 1997.
Inflation in the 19-nation eurozone has surpassed U.S. levels in recent weeks as Russia’s actions curtailed Europe’s energy supplies and drove up prices. The U.S. recorded an inflation rate of 8.5% in July, down from 9.1% in June. It hasn’t yet published inflation data for August.
Worryingly for the ECB, the core rate of inflation—which excludes volatile items such as energy and food—increased to 4.3% in August from 4% in July. That suggests high inflation rates could linger even if energy and food prices stabilize. The ECB aims to keep inflation at 2% over the medium term.
Eurozone inflation is likely to rise toward 10% over the coming months, analysts say, as some government energy and public-transport subsidies expire, especially in Germany, and companies pass on higher costs to customers.
Russia shut down its main artery for natural gas to Europe for maintenance on Wednesday, leaving Europe guessing again about whether supplies will restart as demand for the fuel is set to surge during the colder months. Russia’s calibrated throttling of gas supplies has pushed up gas prices from record to record throughout the summer.
There is little the ECB can do to address supply bottlenecks for energy and other commodities. Still, officials at the bank have signaled in recent days that they are willing to act forcefully to prevent high inflation rates from becoming entrenched, including by considering a 0.75-percentage-point interest-rate increase at their policy meeting on Sept. 8. That could help to shore up the value of the euro, which has slid below parity with the U.S. dollar in recent weeks, driving up the cost of Europe’s imports and in turn fanning inflation further.
Investors are almost fully pricing in a 0.75-percentage-point ECB rate increase at the Sept. 8 meeting and total rate increases of 1.6 percentage points through the end of the year, according to ING Bank. The ECB in July increased its key rate by 0.5 percentage point to zero, lagging behind the Federal Reserve, which raised the target range for its policy rate by 0.75 percentage point to between 2.25% and 2.5% at its July meeting.
Rising borrowing costs will likely increase the risk of a slide into recession, with the eurozone economy already slowing as households’ spending power is reduced by a combination of sharply higher energy prices and still-modest wage increases. High energy prices act like a tax on Europe’s households and businesses because the region imports most of its energy, in contrast with the U.S., which is one of the world’s biggest energy producers.
U.S. Job Openings Rose in July as Hiring Accelerated
U.S. job openings rose in July as employers scooped up workers in a tight labor market.
The Labor Department on Tuesday said there were a seasonally adjusted 11.2 million job openings in July, up from the previous month’s upwardly revised 11 million. Job openings have remained elevated and above 10 million since the summer of 2021.
U.S Labor Department, Washington D.C
The number of times workers quit their jobs edged down to 4.2 million in July from the prior month’s 4.3 million. Layoffs and discharges fell slightly to 1.4 million in July from the prior month’s level. Hiring slowed slightly to 6.4 million, down from 6.5 million in June.
The jobs market remains strong, but some signs have pointed to slowing momentum as the Federal Reserve raises interest rates to tamp down inflation running near a four-decade high. The average pace of job growth in the first half of the year was slower than in all of 2021, and new applications for unemployment benefits have hovered near the highest point of the year in recent weeks.
A separate report released Tuesday said consumer confidence improved in August, ending a three-month streak of declines. Private-research group the Conference Board said Tuesday that its consumer-confidence index rose to 103.2 in August from a revised 95.3 in July, as households’ concerns about inflation retreated amid lower gasoline prices.
Later this week, the Labor Department will report how many jobs the U.S. economy added in August and say whether the unemployment rate held at the 50-year low reached in July. The August employment report will include updated figures on wage gains, a factor driving high inflation.
Job openings still greatly exceed the number of unemployed people seeking work, and separate private-sector estimates show that labor demand remains high, but is slowing as the broader economy loses steam.
Jobs site ZipRecruiter estimates there were about 10 million job openings through mid-August, down from the seasonally adjusted 11.2 million openings in July.
Industries where work is more likely to be done in person, like tourism and education, had some of the highest job-opening rates in July. The South, the Midwest and the West all had a higher job openings rate in July than they did a year before.
“While the labor market is still carrying solid momentum, we expect the hefty pace of job growth will moderate in the second half of the year as companies face a weaker domestic and external backdrop,” Lydia Boussour, lead U.S. economist at Oxford Economics, wrote in an analyst note.
Several companies, including Ford Motor Co., Walmart Inc., Robinhood Markets Inc. and Redfin Corp., have said they are laying off workers or plan to shrink their workforce as they face declining business activity and rising interest rates.
The high level of job openings means that it remains easy for laid-off workers to quickly land a new job. However, ZipRecruiter data show that some job seekers have become more concerned about job security and more are worried that a job offer they received might be rescinded, according to Julia Pollak, chief economist of ZipRecruiter.
The share of job seekers who have said they felt financial pressure to accept the first offer they received has also increased, she added.
“While the labor market is still carrying solid momentum, we expect the hefty pace of job growth will moderate in the second half of the year as companies face a weaker domestic and external backdrop”
World
NASA’s Artemis Launch Postponed After Engine Procedure Fails on Moon Rocket
NASA is likely to remove its massive moon rocket from a launchpad after scrubbing a second attempted launch Saturday, a move that could delay the planned Artemis I mission by several weeks, officials said.
Rolling the agency’s Space Launch System rocket back to a facility here, NASA officials said, would allow engineers to work on resolving a hydrogen leak. The leak prompted engineers to again delay the Artemis I launch, intended as the first step in the agency’s multiyear plan to land astronauts on the moon. NASA leaders also discussed potentially conducting that work on the launchpad, leaving the rocket in place.
NASA Administrator Bill Nelson said the decision to postpone Saturday’s planned launch, which came after the agency earlier in the week called off its first try, was prudent. Three attempts to stop what officials described as a large hydrogen leak failed, pushing launch teams to ultimately set aside plans for a blastoff earlier in the afternoon.
NASA Administrator, Bill Nelson
“We don’t have the launch that we wanted today,” Mr. Nelson said at an afternoon briefing Saturday. He said that safety is the agency’s priority, and NASA won’t try to blast off the rocket until it is ready.
NASA won’t attempt a launch on Monday, Sept. 5, or Tuesday, Sept. 6, other potential windows that the agency had previously identified if Saturday’s launch didn’t proceed. A launch period including those dates is “definitely off the table,” said Jim Free, the agency’s associate administrator focused on developing exploration systems.
Determining if another attempt is possible later in the fall, including October, will depend on the options NASA’s teams deliver, likely early next week, Mr. Free said.
The hydrogen leak emerged during the fueling process Saturday and couldn’t be contained despite multiple attempts to fix it, the agency said. The leak related to a “quick disconnect” connection on a line used to flow liquid-hydrogen into a huge tank on the Space Launch System, the towering rocket that the National Aeronautics and Space Administration wants to use to start its Artemis missions, which aim to return astronauts to the surface of the moon.
The SLS rocket uses super-cold liquid hydrogen and liquid oxygen as propellants, and filling its enormous tanks with them is a challenge. Hydrogen is a very small molecule and can escape efforts to contain it, NASA officials have said.
The agency said after a practice run in June that it would take fresh steps to deal with a hydrogen leak, and NASA was able to manage through a leak during fueling on Monday, before that launch was called off because of problems with an engine-cooling procedure.
NASA’s Vehicle Assembly Building, Kennedy Space Center, Florida
Engineers tried two different methods to stop the leak Saturday after first detecting it at 7:15 a.m. ET.
Neither was successful. Around 10 a.m., they decided to try the first fix again, allowing the connection related to the leak to warm up before teams “hit it with some cryos,” said Derrol Nail, the agency’s commentator on its live stream—a reference to the super-cold cryogenic liquid hydrogen. The leak returned.
The hydrogen leak Saturday was large, Artemis mission manager Mike Sarafin said at a briefing, and didn’t respond to techniques that resolved a smaller leak during the first launch attempt earlier in the week.
NASA faces another constraint to launching again soon, officials said, related to the batteries on a system that can be used to terminate a flight.
After years of delays and cost overruns, NASA is trying to ignite the SLS rocket and launch the crewless Artemis I mission from a pad at the Kennedy site. Artemis is the name of NASA’s program to return astronauts to the moon, where no person has visited since 1972, and eventually to develop a long-term presence there and push on to Mars.
NASA’s Space Lauch System Rocket
For Artemis I, the SLS rocket would power the uncrewed Orion spacecraft toward a lunar orbit. Later, the capsule on that vehicle would return to Earth as part of a critical test of its heat shield.
NASA scrubbed Monday’s attempt after encountering a series of challenges during countdown. In particular, the agency decided it needed more time to analyze data related to a problem that emerged during a cooling procedure for the SLS rocket’s four engines.
While auto-racing drivers warm up engines on their cars before competing, NASA needs to chill the engines on the SLS rocket to around minus 420 degrees Fahrenheit to condition them for takeoff. During the attempt on Monday, one of the four engines wasn’t getting as cold as the other three, though none of them cooled down to the right temperatures, officials said during briefings this week.
NASA officials said on Thursday that a temperature sensor delivered faulty data about the engine in question, even though sufficient quantities of ultracold liquid hydrogen used for the cool-down procedure were flowing into the engines.
Because of the hydrogen leak Saturday, NASA wasn’t able to try the engine-cooling process again.
Court Releases Detailed FBI Inventory of Material Seized at Trump’s Mar-a-Lago Home
Top secret and other classified documents at Mar-a-Lago were kept in boxes that also held newspaper and magazine clippings, clothing and gifts, according to a more detailed list, made public Friday, of items FBI agents seized in their search of former President Donald Trump’s home last month.
Former U.S President, Donald Trump
Agents took around 33 boxes, containing more than 100 classified documents, prosecutors have said. Seven of the boxes or containers were located in Mr. Trump’s office and the rest in a storage room at the private club, according to the inventory.
Prosecutors had previously made public a briefer list that showed agents had recovered sets of classified documents and other items, including the executive grant of clemency for Mr. Trump’s ally Roger Stone and information about the president of France, but the new inventory details how many items and of what type were found in each box.
In one of the boxes found in Mr. Trump’s office, 99 newspaper and magazine clips dated from 2017 and 2018 were held alongside seven documents marked as top secret, 15 documents marked as secret, 43 empty folders marked as classified, and 28 empty folders labeled “Return to Staff Secretary/Miliary Aide,’ among other items, the receipt shows.
Another five empty folders with classified banners were found in the storage room, according to the list. It couldn’t be determined whether the files originally held in any folders marked classified were found elsewhere in the search or have been otherwise accounted for.
U.S. District Judge Aileen Cannon ordered the more detailed inventory unsealed Thursday after Mr. Trump’s team had asked for it and the Justice Department said it was prepared to make it public.
The inventory appears to illustrate the haphazard organization of the files Mr. Trump took with him to his Florida resort during his chaotic exit from the White House. A lawyer for Mr. Trump, speaking at a hearing before Judge Cannon on Thursday, likened the dispute over the material to one involving overdue library books.
The list also underscores what Justice Department officials have described as concerns that the highly sensitive information, including some derived from clandestine human-intelligence sources, was commingled with other items and insecurely stored. The list doesn’t describe the subjects of any of the classified or other documents.
One box removed from the storage room held 68 press clippings dated between 2015 and 2017, with an article of clothing or gift, one book, and two U.S. government documents or photographs without classification markings, according to the list. Another contained 30 press clippings along with 21 documents marked as secret and another 11 marked as confidential, the list said.
Several of the boxes agents seized also contained reams of government documents that weren’t classified, according to the inventory. One contained 357 such documents or photos, alongside two marked as classified, and two dozen media clips from 2020, it said. Two other boxes held a total of 1,036 government records that weren’t classified, it said.
Prosecutors have said they are investigating potential violations of both the Espionage Act, which governs classified information, and a presidential records law requiring that White House records go to the National Archives.
A spokesman for Mr. Trump, Taylor Budowich, wrote on Twitter: “The new ‘detailed’ inventory list only further proves that this unprecedented and unnecessary raid of President Trump’s home was not some surgical, confined search and retrieval that the Biden administration claims, it was a SMASH AND GRAB.”
Mr. Trump and his team have said the material was shipped to Mar-a-Lago at the end of his presidency following frantic last-minute packing. In the final months of his term until he left office on Jan. 20, 2021, Mr. Trump was largely preoccupied with overturning his November 2020 election loss.
“These were things that were haphazardly being kept and were taken haphazardly,” said Mr. Trump’s former Attorney General William Barr, who left office in December 2020. “Once you’re investigating, and you go in and execute a search warrant, you’re entitled to take not only the government records but things from the same containers where you found the documents that will show the context in which they were held.”
Donald Trump’s Former Attorney General, William Barr
“The new ‘detailed’ inventory list only further proves that this unprecedented and unnecessary raid of President Trump’s home was not some surgical, confined search and retrieval that the Biden administration claims, it was a SMASH AND GRAB”
China
China’s Economic Woes Drag On With Factory Disruptions, Property Slump
Chinese factory activity shrank and home sales tumbled in August, as the world’s second-largest economy struggled to shake off the impact from Covid-19 flare-ups, its worst heat wave in six decades and a deepening real-estate downturn.
China’s Capital City, Beijing
As the heat wave led to electricity shortages and production disruptions, manufacturing activity shrank for a second consecutive month, China’s National Bureau of Statistics said Wednesday. Home sales also continued to slide, despite efforts by the government to lower purchase barriers and help developers complete projects, according to a Chinese real-estate data provider.
Prolonged weakness in China’s economy is impeding an engine of global growth as major economies face pressure from inflation and the impact of the Ukraine war. Weak demand within China also spells trouble for multinationals such as Apple Inc. and Starbucks Corp. , which count on China’s appetite for a range of goods from raw materials to smartphones and coffee for profit growth.
China showed signs of a nascent recovery in June, after pandemic restrictions were lifted in the financial hub of Shanghai, but that recovery has lost steam in the months since. A resurgence of Covid-19 cases in the past month has triggered fresh lockdowns in Chinese cities.
The official manufacturing purchasing managers index edged up to 49.4 in August from 49 in July, China’s National Bureau of Statistics said Wednesday, exceeding the median forecast of 49.2 among economists. A score of above 50 indicates an expansion in the manufacturing sector; below 50, a decline.
China’s “recovery is still not on solid footing,” Barclays economists Yingke Zhou and Jian Chang wrote in a note to clients after Wednesday’s data was released.
The power crunch brought on by the heat wave depressed factory activity and forced global manufacturers including Foxconn Technology Group and car makers Toyota Motor Corp. and Volkswagen AG to temporarily halt production.
Separately, new data released Wednesday showed the property market is still trying to find a bottom, with home sales tumbling for the 14th consecutive month.
Sales at the country’s top 100 property developers fell more than 30% from the same month last year, to the equivalent of about $75 billion, or 519 billion yuan, according to data released Wednesday by China Real Estate Information Corp., an industry data provider. Compared with July, August sales slipped 0.8%.
Beijing unexpectedly lowered two key interest rates in mid-August, and the State Council, China’s cabinet, announced a $146 billion stimulus package to shore up growth. Still, many economists expect business investment and consumer spending to remain depressed, as China’s stimulus is largely focused around infrastructure spending and the country remains reluctant to budge from its zero-Covid policy, which has amplified uncertainties for companies and hurt consumer confidence.
Chinese leaders have signaled they are prepared for lower growth this year. At a key political meeting in July, Chinese policy makers effectively abandoned a growth target of about 5.5%, set earlier this year.
China’s statistics bureau also said Wednesday that China’s nonmanufacturing purchasing managers index fell to 52.6 in August from 53.8 in July. The spread of the coronavirus and bad weather held back growth in both services and construction activity in August, it added.
The services sector represented 53% of China’s gross domestic product in 2021, and sluggishness there doesn’t bode well for the economy, economists from ANZ said. The bank cut China’s full-year GDP growth to 3% from 4% after Wednesday’s data release, citing weakening demand at home and abroad.
The country’s strategy of resorting to sudden lockdowns to contain Covid-19 continues to hinder growth. In the past month, Covid flare-ups in dozens of cities have led to mass testing and closure of entertainment and business venues.
“China’s recovery is still not on solid footing”