What companies are telling us about layoffs and tariffs

Investing.com -- Tariffs are no longer the primary threat to corporate profitability, but emerging signs of labour-market softening are beginning to worry investors, according to analysis from BCA Research. 

In a report, the firm’s chief strategist, Irene Tunkel, said tariffs “are fading in importance as companies successfully mitigate cost pressures and preserve profitability,” while the recent wave of job cuts signals a more complex and potentially risky backdrop.

BCA Research noted that tariffs “remain a drag on select sectors,” but most large firms have “successfully mitigated their impact, limiting margin erosion.” 

As a result, tariffs are “unlikely to hinder earnings growth or pose meaningful risks to the labor market” in the months ahead.

Layoffs, however, are proving harder to dismiss. Citing Challenger, Gray & Christmas data, BCA Research said October saw “153,000 announced layoffs… the highest non-recession October in 22 years,” bringing the year-to-date total to 1.1 million. 

Yet the firm emphasised that there is “no single systemic driver behind the recent wave of layoff announcements.”

Technology and warehouse industries accounted for a large share of October cuts, though the latter was skewed by double-counting related to UPS. 

Tech-sector layoffs, BCA Research found, have “little to do with profitability,” with the S&P 500 tech sector growing earnings 27% in the third quarter. 

Instead, firms appear to be “trimming headcounts to redirect resources toward GenAI infrastructure,” with AI-related restructuring making up roughly 20% of layoffs.

Cost-cutting explains around one-third of October reductions, while a concerning proportion was attributed to “market and economic conditions.” 

As Andy Challenger of Challenger, Gray & Christmas warned, “AI adoption, softening consumer and corporate spending, and rising costs drive belt-tightening and hiring freezes.”

BCA Research concluded that further labour-market deterioration “could challenge earnings resilience and sentiment,” though its strategic outlook for equities “remains constructive for now.”