I haven't seen a second source or confirmation on this, but Mary Hodder is twittering that Google is laying off staff (not contractors):
MaryHodder: "Talkng to friend laid off from Google Friday. Others in their eng. gp as well. They don't want to discuss publicly, but R ok w. my telling."
MaryHodder:"We think Goog is quietly laying ppl off so as not to alert press. Mgrs have mandate to reduce headcnt, no matter how critical the project."
johnbattelle: "@MaryHodder was your friend a full time or contractor?"
MaryHodder: "@johnbattelle full time eng on a critical path project. so were others.. 4-5 yr employees."
moon: "@MaryHodder These Engineers laid-off by Google, were their Projects discontinued?"
MaryHodder: "@moon no.. projects still there. my impression is Mgr told to reduce.. so they got rid of a couple of ppl."