A new wave of corporate layoffs could pick up momentum if the economy does not kick into a higher gear soon.
International banking firm HSBC was the latest big company Monday to announce job cuts, trimming an astounding 30,000 workersfrom its global workforce.
Just last Friday, Merck announced a new round of job cuts, saying it would pare 13,000 employees from its work force of 91,000 by 2015. Failed book seller, Borders is letting go another 10,700 workers, as it shuts down all of its retail stores.
"These heavy cuts are a sign the economy is stalling. The GDP numbers back it up. This is a concrete result of what you get when you see GDP stalling under 2 percent, like we've seen for two consecutive quarters," said John Challenger, CEO of Challenger Gray and Christmas, which monitors layoffs.
The announcements come as economists look to Friday's employment report, expected to show that just 90,000 jobs were added in July.
While each company making cuts has a special story, Challenger said the fact the layoffs are across so many industries is a telling sign for the economy.
"These layoffs were very broad-based. Many of these companies are iconic companies, well known, big names. This is what precipitates out when you have an economy that is stalling. You then have major companies, not concentrated in one industry," reducing headcount, he said in a phone interview Monday.
Challenger said the layoffs are coming from financial, pharmaceutical, defense, retail and technology companies. Challenger says it is unusual to see companies announce substantial staff reductions at this time of year.
Credit Suisse economist Jonathan Basile said he is paying close attention to the layoff news, but it does not necessarily mean a new recession is on the horizon. He sees a low chance of a new recession.
"Over the long haul, when demand is this soft or growth this much below trend, you tend to get the same for jobs. When you see GDP do what it's doing, upon the rewrite of history, it makes a little more sense to see tat downshift," he said.
Basile expects to see 90,000 nonfarm payrolls were added in July when the government releases the monthly employment report, including the reduction of 25,000 government jobs. Weekly jobless claims were at 398,000 last week, under the psychologically important 400,000 level for the first time in three months. "There's so many cross currents. All the indicators we look at are not going in one direction," he said.
"There's no doubt (corporate layoffs) are in the news. I'm taking what happened to jobless claims in July with a grain of salt. I don't know how we stay below 400,000. We've seen layoff announcements that are pretty public," said Basile.
Friday's report of first and second quarter GDP drove home the sluggish state of the U.S. economy and provides a backdrop for a 9.2 percent unemployment rate and the string of poor jobs reports in the past several months. The second quarter grew at a 1.3 percent pace, well below the 1.8 percent expected by economists, but the shocker was a revision knocking first quarter growth down to 0.4 percent, from a previous 1.9 percent.
Economists had been expecting second half growth to accelerate to a level of about 3 percent, but several cut their third-quarter estimates to a 2 percent range after the number.
"The (GDP) revisions were pretty massive. The risks have been to the downside for a few weeks," said J.P. Morgan economist Michael Feroli.
Feroli has been expecting to see growth of about 2.5 percent in the current third quarter but that is still a low level of activity. "I don't think it's sufficient to get any meaningful job growth," he said.
Monday's disappointing ISM manufacturing survey was the first major piece of third quarter data, and it showed the impact of a slower economy. The index was at 50.9, well below the expected 54.5. A level below 50 signals contraction.
The jobs component of the ISM report was also worrisome. Goldman Sachs economists say in a note that expectations for Friday's employment report may now decline.
"Among the components, the largest decline came from the employment index, which fell by 6.4 points to 53.5. This may cause some forecasters to trim expectations for nonfarm payroll employment, published Friday. The current consensus is for a gain of 90,000. (We are below consensus at 50,000)," they wrote.
Layoffs Add Up
Other companies laying off workers include Lockheed Martin, which is letting 6,500 workers go. Credit Suisse is reported to be cutting 2,000 jobs, while UBS is reported to be trimming 5,000 positions and Goldman Sachs , 1000. Cisco islaying off 6,500, and Canadian-based Research In Motion is cutting 2,000 jobs.
Evidence of July's hiring and firings will show up in the monthly employment report this Friday, and an increasing number of firings could come from the public sector.
"I think it will be just a so-so number. I would say it is probably under 100,000," Feroli said. Job growth has been flat recently, with just 18,000 workers added in June and 25,000 in May. That compares to 217,000 in April.
Moody's Economy.com economist Mark Zandi said the weak job environment has been the result of companies not hiring, as opposed to firing.
"So far, it's been a lack of hiring, but I thought it was more due to things like the Japanese quake effect on motor vehicles. But when you see these kind of growth rates, you're (companies) going to start refocusing on costs and that means layoffs. If we stay here much longer, there's going to be more cuts," said Zandi. U.S. auto manufacturing was impacted after the March earthquake because of the unavailability of parts from Japan.
Zandi said positive action by Congress on raising the debt ceiling and structuring a fiscal plan might also help the economy and the job situation, he said.
Economists have said the drama around the debt ceiling extension and deficit reduction has sidelined business activity and consumers, but the amount of direct economic impact is hard to gauge. They say the ISM data reflected nervousness on the part of manufacturers.
Congress was moving toward a vote Monday night, after an agreement on a plan was announced by President Obama. The government has until Tuesday to extend the debt ceiling. (Follow the latest in the debt debate here)
"The economy is just sucking wind and will be suffocated if they don't nail this down," said Zandi.
Challenger Gray releases its monthly layoff data Wednesday. Challenger has reported that the number of planned layoffs at U.S. firms increased in June for a second month. Employers in June announced 41,432 layoffs, up 11.6 percent from May and up 5.3 percent from the year earlier. Downsizing in the U.S was at its lowest pace in the first half since 2000.
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