Layoffs rise as firms retrench due to earnings
October 26, 2012
Just when it looked as if the economy was upsizing, more companies are downsizing.
A mounting number of companies, including many tech firms, have been announcing layoffs, prompting some to worry about the proliferation of pink slips amid third-quarter earnings reports showing nearly zero growth.
"We've seen a spate of bad earnings announcements," says John Challenger of outplacement firm Challenger Gray & Christmas. "Companies often take fast action," which results in job cuts.
Colgate-Palmolive was the most recent example Thursday, with plans to cut 2,300 jobs. But that announcement just piled on top of similar revelations from firms such as online game company Zynga, heavy equipment maker Caterpillar, computer chipmaker Advanced Micro Devices and chemical firm DuPont in recent weeks.
Early data point to a disturbing rise in layoffs, as seen by:
-- Recent uptick in layoffs. Companies in North America announced plans to cut more than 62,000 jobs since Sept. 1, says Bloomberg News. That's the biggest two-month slashing of jobs since the beginning of 2010.
-- Heavy hits by specific industries. There have been 40,671, 33,063 and 7,714 job cuts announced by the computer, transportation and insurance industries collectively this year through September, says Challenger Gray & Christmas. These are increases of 240%, 184% and 180% from the same periods last year. Tumult in the computer industry is a big reason for the hit to computer firms such as Hewlett-Packard, says Challenger.
-- Rise in mass layoffs. Employees levied 1,316 mass layoff actions in September, 49 more than in August, affecting 122,462 workers, says the U.S. Bureau of Labor Statistics. Mass layoffs are those that affect 50 workers or more.
Much of the recent layoff activity is connected to what's been the slowest period of earnings growth since the third quarter of 2009. Analysts are expecting companies in the Standard and Poor's 500 to report 0.4% higher earnings. Meanwhile, five of 10 industries are expected to post lower earnings, including materials and energy.
It's not all bad news. Layoff announcements in September were up 4.9% from the 20-month low in August, but still down 71% from a year ago, says Challenger Gray & Christmas.
The job cuts are just part of companies' snap decision to hold down expenses, given questions about the looming fiscal cliff and taxation after the November election, says Jack Ablin of BMO Private Bank. Lagging revenue growth, too, has forced companies to resort to cost-cutting to reach profit goals, he says.
Meanwhile, with China's economic growth slowing, many business leaders are less confident that demand from Asia can make up slack in weak domestic markets, says Michelle Clayman of New Amsterdam Partners. "It's hard for companies to keep pumping out product if not seeing end demand," she says. "Labor costs are a large part of total costs."