The signs of slowing growth are gathering, but ignoring the silver linings also coming alongside them would be a mistake. Some very high-profile companies, notably semiconductor manufacturer Micron Technology (MU 2.20%), Tesla (TSLA -3.40%), and Google owner Alphabet (GOOG 1.43%) (GOOGL 1.42%) have already served notice of difficult conditions ahead. Let's look at what happened and why it's not all bad news for the markets. 

Slowdown coming

Semiconductors are always thought of as the canary in the coal mine. So when chip customers see end-user demand for their products slowing, the first thing they do is look to cut orders from chipmakers as they no longer need to replenish semiconductor inventories at the same rate. That's why the market got so stressed when Micron's third-quarter earnings report was delivered at the end of June.

Micron sells memory and storage chips to a broad range of customers, including data centers, smartphones, PC, industrial technology, autos, and other markets. So when its management said, "Recently, the industry demand environment has weakened, and we are taking action to moderate our supply growth in fiscal 2023," it was time to start worrying.

In the commentary on the earnings call,  CEO Sanjay Mehrotra said, "Near the end of fiscal Q3, we saw a significant reduction in near-term industry bit demand, primarily attributable to end demand weakness in consumer markets, including PC and smartphone."

Hiring is slowing

When end markets are slowing, CEOs tend to react to slowing end markets by cutting capital spending (particularly growth investments) and paring back hiring plans. This is not only a bearish indication for current conditions but also bodes ill for consumer spending down the line -- unemployment and job insecurity are not good for consumer spending. 

Unfortunately, both Tesla and Alphabet CEOs are lowering hiring plans. According to Reuters, Tesla's Elon Musk plans to cut the company's workforce by 10%, with new hiring failing to offset the cut, meaning the total headcount would fall by 3.5%. Musk also raised concerns over the possibility of a coming recession. The development is all the more concerning because Tesla is struggling to meet its production targets for 2022 -- usually not the time to cut staff. 

It's a similar story at Alphabet, where CEO Sundar Pichai recently told employees that Google wasn't "immune from economic headwinds" and would slow the pace of hiring in 2022. Given that Alphabet is set to be sitting on $140 billion in net cash at the end of the year and set to generate (based on current Wall Street estimates) more than $260 billion in free cash flow over the next three years, it's a somewhat puzzling development. Arguably, a company in Alphabet's position should be investing in a slowdown to generate value for long-term investors. Nevertheless, the hiring slowdown speaks to Pichai's view of the economy. 

It's not all bad news

The above news isn't positive, but it has some silver linings. There are three key arguments to this bullish theory, and they all relate to real-life problems companies are facing in 2022:

  • A lowering of chip prices and an increase in availability will help companies who were previously struggling to secure them at reasonable prices. 
  • Cooling labor and transportation markets will make it easier for some companies to secure and retain employees. 
  • A slowdown in the economy will reduce raw material cost inflation in crucial materials (in fact, this is already happening).

As such, some of the problems many companies face in 2022 are about to ease. For example, Boeing CEO David Calhoun recently told investors that a slowdown might make recruiting and retaining staff easier. Similarly, industrial company Johnson Controls (JCI 1.54%) lowered its full-year earnings guidance after failing to overcome supply chain difficulties and component shortages (including semiconductor shortages) -- that situation could ease now. Similarly, transportation costs (container freight rates) and commodity prices have also fallen dramatically in recent weeks -- that too should help alleviate cost pressures in the future. 

The long-term view

While it's a mistake to underestimate the impact of a slowdown on demand, it's also an error to ignore that it will likely ease some of the pressures companies face in 2022. That could be a good thing in certain quarters and may lead to the weak patch proving shorter than the market may expect. While it's impossible to know when the market may have hit bottom, if the benefits of lower transportation and raw material costs and an increase in the availability of labor and components come through, then that point will come sooner rather than later.