Tesla (TSLA 4.96%) CEO Elon Musk is never afraid to speak his mind, and millions of people pay close attention. So when Musk warned that he's growing pessimistic about the future of the U.S. economy and recommended taking action to defend his company from a potential slowdown, investors listened -- and Tesla's share price fell more than 7% in response Friday morning.
Musk isn't alone in worrying that the economy could be headed toward a recession. What's potentially concerning about the Tesla leader's comments, though, is that in some ways, consumer-led recessions can be self-fulfilling prophecies. That leaves a key question: Will the many consumers who follow Musk take his words as a sign to secure their personal finances in such a way as to contribute to the economy's slowdown?
A Tesla factory assembly line. Image source: The Motley Fool.
Musk's "super bad feeling" about the economy
Musk emailed Tesla executives on Thursday that he has a "super bad feeling" about the economy, according to reports from Reuters. The reports indicated that the Tesla CEO told his staff to pause its hiring across the globe, and that he believes the electric-vehicle maker will need to reduce its workforce by about 10%. Given Tesla's recent employee count, a 10% cut would work out to nearly 10,000 potential job losses.
Tesla isn't the only company that has responded to a tough economic environment by scrutinizing its workforce. Coinbase Global (COIN -0.34%) has had to deal with a bear market in its core cryptocurrency market, and it has extended a hiring freeze and rescinded some job offers to prospective hires. Even tech giants like Apple (AAPL 0.52%) and Meta Platforms (META -10.56%) have frozen new hiring or retracted job offers in certain areas, and others like PayPal Holdings (PYPL -1.14%) have recently trimmed their workforces.
Strong job growth -- for now
Against that backdrop, it was surprising to see the Bureau of Labor Statistics report a stronger employment picture for the month of May than most economists had expected. The economy created 390,000 jobs during the month, about 60,000 to 65,000 higher than the consensus forecast.
Yet many of those jobs were in areas outside of technology. Leisure and hospitality jobs showed the biggest monthly gains, up 84,000 from April. There were 47,000 new jobs in transportation and warehousing, suggesting potential relief in at least one of the challenges that global supply chains have faced lately. Professional and business services also saw considerable growth of 75,000 jobs, and although more than 13,000 of those positions were in computer systems design, many more were in areas like employment services, accounting, and bookkeeping.
However, even with the strong report overall, there were troubling signs in the details. The economy lost 61,000 retail trade jobs during the month, which is consistent with consumers pulling back on spending on goods. Although pent-up demand for services might take up the slack in the economy for a while, concerns about high inflation have some wondering how long consumers can pay up for what they want to buy.
Moving toward a sure thing
Musk's views about the broader economy aren't new. Just a few weeks ago, he told attendees of the All-In Summit in Miami that the economy was probably in a recession, with tough times likely to last between 12 and 18 months.
Yet it's one thing to say there's a recession, and another to take aggressive action as a corporate leader to defend against the potential for one. Musk's influence will inevitably lead other business executives to look closely at their own plans for managing their workforce, and news of job cuts will hurt consumer confidence.
Indeed, Musk isn't alone in making gloomy predictions. JPMorgan Chase (JPM 0.15%) CEO Jamie Dimon warned of an economic "hurricane" coming, and the bank leader said his company expects to be increasingly conservative in its lending practices to protect its balance sheet.
Musk likely doesn't want to be proven right. But if that vicious circle of negative feedback gets strong enough, it could end up creating the very economic recession that everyone fears right now.
