Insights

Did This Company Make a Tight Labor Market Worse?

One of the common themes throughout the pandemic was the shortage of labor. After an initial wave of layoffs, many stayed home and shunned opportunities to get back into the workforce for a variety of reasons.
But several companies have added workers since the end of 2019. For them, business boomed and they expanded accordingly. One stands out above the rest. Amazon (NASDAQ: AMZN) actually doubled the number of employees over the past two years. It helped the company meet unprecedented demand, but now its shareholders are paying the price. Does that make it time to sell the stock or be patient as e-commerce growth catches up to the added capacity?
Image source: Getty Images.

Getting back to normal
Although job growth has been robust, the country still hasn’t recovered the 22 million jobs it lost at the onset of the pandemic. We still need to create 1.2 million to fill the gap. That should happen by July at the current pace. Six states are already back to pre-pandemic levels. And the number of job openings remains at record levels. Overall, the labor market is very strong.

Image source: Statista.
Not every segment of the economy feels the same
For obvious reasons, jobs in the accommodations and food services — hotels and restaurants — were hit hardest. They lost a combined 6.9 million jobs in March and April 2020. Opportunities were limited. Many moved to new industries. With the shift of consumer spending online, and the relative financial stability of multibillion dollar corporations, their destination was obvious in hindsight.
Big box retailers such as Walmart (NYSE: WMT) and Target (NYSE: TGT) offered steady hours and pandemic bonuses. Shippers UPS (NYSE: UPS) and FedEx (NYSE: FDX) were delivering more packages than ever. But one employer added an army of workers.
The most popular destination by far was Amazon. It doubled its workforce over the past two years. It was necessary. Revenue for both the North American and international retail segments grew about 70% over that span. Management expected the growth to persist.

AMZN Total Employees (Annual) data by YCharts
Too much capacity, for now
The boost served the company and its shareholders well. At one point last year, the stock was up 90% from the beginning of 2020. Now shares of Amazon are off 40% from that high. 
CFO Brian Olsavsky said the company did a lot of hiring to backfill sick workers as coronavirus variants spread. It quickly became overstaffed as the variants subsided and all of its employees were healthy enough to return at once. The drop-off in productivity — as measured by revenue per employee — has been significant. But the issue should clear itself up over time.
 

AMZN Revenue Per Employee (Annual) data by YCharts
One tailwind firmly at the company’s back is the shift from brick-and-mortar stores to e-commerce. COVID-19 might have caused a temporary peak, but the long-term trend remains firmly in place. Its investments in the fulfillment network — which cost it $2 billion in the first quarter and an estimated $4 billion in the current quarter — will just reinforce its advantage of speedy delivery.
As for all of those extra employees, Olsavsky said recent trends point to improved productivity. He doesn’t expect to get back to pre-pandemic levels in the next few quarters. But the overall excess capacity should be soaked up during its annual Prime Day sale in July and the ramp up heading into the holiday season. It should also be able to manage the workforce through a notoriously high attrition rate. 
For Amazon shareholders, volatility shouldn’t be anything new. The stock has fallen more than 25% four times in the past decade. Every time it has been a golden buying opportunity. I don’t expect this time will be any different.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jason Hawthorne has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and FedEx. The Motley Fool has a disclosure policy. –

One of the common themes throughout the pandemic was the shortage of labor. After an initial wave of layoffs, many stayed home and shunned opportunities to get back into the workforce for a variety of reasons.

But several companies have added workers since the end of 2019. For them, business boomed and they expanded accordingly. One stands out above the rest. Amazon (NASDAQ: AMZN) actually doubled the number of employees over the past two years. It helped the company meet unprecedented demand, but now its shareholders are paying the price. Does that make it time to sell the stock or be patient as e-commerce growth catches up to the added capacity?

Image source: Getty Images.

Getting back to normal

Although job growth has been robust, the country still hasn’t recovered the 22 million jobs it lost at the onset of the pandemic. We still need to create 1.2 million to fill the gap. That should happen by July at the current pace. Six states are already back to pre-pandemic levels. And the number of job openings remains at record levels. Overall, the labor market is very strong.

Image source: Statista.

Not every segment of the economy feels the same

For obvious reasons, jobs in the accommodations and food services — hotels and restaurants — were hit hardest. They lost a combined 6.9 million jobs in March and April 2020. Opportunities were limited. Many moved to new industries. With the shift of consumer spending online, and the relative financial stability of multibillion dollar corporations, their destination was obvious in hindsight.

Big box retailers such as Walmart (NYSE: WMT) and Target (NYSE: TGT) offered steady hours and pandemic bonuses. Shippers UPS (NYSE: UPS) and FedEx (NYSE: FDX) were delivering more packages than ever. But one employer added an army of workers.

The most popular destination by far was Amazon. It doubled its workforce over the past two years. It was necessary. Revenue for both the North American and international retail segments grew about 70% over that span. Management expected the growth to persist.

AMZN Total Employees (Annual) data by YCharts

Too much capacity, for now

The boost served the company and its shareholders well. At one point last year, the stock was up 90% from the beginning of 2020. Now shares of Amazon are off 40% from that high. 

CFO Brian Olsavsky said the company did a lot of hiring to backfill sick workers as coronavirus variants spread. It quickly became overstaffed as the variants subsided and all of its employees were healthy enough to return at once. The drop-off in productivity — as measured by revenue per employee — has been significant. But the issue should clear itself up over time.

 

AMZN Revenue Per Employee (Annual) data by YCharts

One tailwind firmly at the company’s back is the shift from brick-and-mortar stores to e-commerce. COVID-19 might have caused a temporary peak, but the long-term trend remains firmly in place. Its investments in the fulfillment network — which cost it $2 billion in the first quarter and an estimated $4 billion in the current quarter — will just reinforce its advantage of speedy delivery.

As for all of those extra employees, Olsavsky said recent trends point to improved productivity. He doesn’t expect to get back to pre-pandemic levels in the next few quarters. But the overall excess capacity should be soaked up during its annual Prime Day sale in July and the ramp up heading into the holiday season. It should also be able to manage the workforce through a notoriously high attrition rate. 

For Amazon shareholders, volatility shouldn’t be anything new. The stock has fallen more than 25% four times in the past decade. Every time it has been a golden buying opportunity. I don’t expect this time will be any different.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jason Hawthorne has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and FedEx. The Motley Fool has a disclosure policy.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

  • This field is for validation purposes and should be left unchanged.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Share on facebook
Share on twitter
Share on linkedin

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;


To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.


An active and funded account with a positive trading balance is required to continue to have access to the tools;


Although the tools are available to you indefinitely, Monex Securities may at it’s discretion disable access to the tools in the future;


Monex securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Important Notice
iOS & Android - 12 International Markets & Over 70% Global Market Cap. $0 Brokerage On US & HK* Trades. Click Here!