How to achieve a soft landing: Amazon sets an example for the US economy

Amazon's e-commerce business experienced a real recession in the first half of 2022 as consumers shifted from online shopping to consumption activities such as travel and dining out . However, the retail giant has successfully responded to the rapid changes in consumer behavior by adjusting the number of warehouse employees and focusing on other less volatile businesses . Although there is no guarantee that the U.S. economy can cut economic activity without triggering a more severe recession, Amazon's example provides valuable experience.

In its earnings report released last Thursday, Amazon said its sales growth slowed and it had two consecutive quarters of losses, including a write-down of the company's stake in electric car maker Rivian. The weakness in Amazon's core business was mainly in the e-commerce division. Earlier this year, the division's existing employees and warehouses became redundant . The company made investment decisions based on the surge in demand after the outbreak of the new crown pneumonia epidemic . By the time production capacity comes online in early 2022, consumers have begun to buy less of certain goods.

As a result, Amazon began focusing on cutting costs and improving warehouse efficiency . Because Amazon's employee turnover is high — warehouse workers have a turnover rate of more than 100% a year — it quickly cut its headcount. At the end of June, Amazon had about 1.5 million employees , about 180,000 fewer than its peak in the first quarter . In an earnings call last week, the company said that as of early May, the resizing of the workforce was largely complete.

But like the rest of the U.S. economy, Amazon 's business is about more than just moving packages back and forth between warehouses , trucks, and users . In the first two quarters of 2022, Amazon Prime subscriptions, advertising, and Amazon Web Services cloud computing revenue all achieved double-digit year-over-year growth. Despite the sluggish e-commerce business , other business segments supported overall revenue. Amazon's stock price soared 10% on Friday after the latest earnings report was released .

Amazon's headcount is stable, but could rise as its e-commerce business heads into another busy holiday season . The company said it will shift investment spending more toward its lucrative cloud business and content for its Prime Video product. It will likely be more conservative in spending on its e-commerce business .

Amazon’s experience is a microcosm of hopes that the U.S. economy will experience a soft landing in the coming quarters .

Parts of the U.S. economy are in recession. Homebuilding has fallen in recent months as homebuyers waited to see if mortgage rates would rise. Retailers are focused on reducing high inventory levels rather than stocking up . The auto industry is paralyzed to some extent as it waits for enough semiconductor production to meet consumer demand. Some parts of the technology industry are cutting spending to adjust to the relatively quiet investment environment.

Yet, for now, some parts of the economy are strong enough to keep growing jobs. Airlines are still aggressively adding to their workforces . Consumer demand for travel and leisure remains strong . State and local governments are running budget surpluses and working to restore jobs lost during the pandemic. And a massive infrastructure bill passed by Congress will lead to hiring and investment across the country .

The question is whether those sectors of the economy are strong enough to offset weakness in some parts of the economy but not so strong that inflation remains elevated . The market has become more optimistic about that possibility over the past month . If Amazon can lay off 10% of its workforce over a period of several months without interruption — and that layoff doesn’t ripple through the entire labor market — it seems like anything is possible .

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US Economy